Category: Accounting

Pay off your Directors Loan and reclaim Corporation Tax

If you’re a company director or ‘participator’ and take money out of your company that’s not a salary or a dividend – over and above any money you’ve put in – you’re classed as having received the benefit of a director’s loan.

If your director’s loan account is not paid off in full within nine months after the end of your company’s accounting period:

  • You must include details of the loan in your Company Tax Return.
  • Your company must pay Corporation Tax on the loan – the current tax rate for directors’ loans is 25 per cent of the loan.

http://www.hmrc.gov.uk/ct/managing/director-loan.htm#5

The good news is that you can reclaim the tax when the loan is repaid (often by paying a Dividend to clear the balance outstanding).

How you do this depends on timing:

  • if your claim is made within 24 months of the end of that accounting period you can amend and resubmit an amended Company Tax Return for that previous accounting period
  • if your claim is made more than 24 months after the end of the previous accounting period you can make a separate claim by writing to HMRC at the same time as you file your Company Tax Return for your most recent accounting period

The Claim was previously known as a S419 claim (S419 ICTA 1988) but its now covered by S455 and S458 Corporation Tax Act 2010

When writing to HMRC makesure you give them as much information as you can for example:

UTR – Unique Taxpayer Reference

Company Name and Details

Amount being reclaimed

Details of the relevant Corporation Tax Returns on which the Directors Loans are shown

Your Bank Account Details for the Refund

You would be surprised at how many businesses never reclaim the S419 tax! makesure you don’t miss out

steve@bicknells.net

Tax Relief for Pre-trading Expenses

By the time you actually start trading, you may have spent thousands of pounds on research and setting up the business.

Provided you have formally notified HM Revenue & Customs that you have started up a business, most of these costs are usually allowable as business expenses in the first year.

Income Tax (Trading and Other Income) Act 2005

Pre-trading expenses

(1)This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade (“the start date”).
(2)If, in calculating the profits of the trade—
(a)no deduction would otherwise be allowed for the expenses, but
(b)a deduction would be allowed for them if they were incurred on the start date,
the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

http://www.legislation.gov.uk/ukpga/2005/5/section/57

http://www.hmrc.gov.uk/manuals/bimmanual/bim46355.htm

VAT Paid Before VAT Registration

You can reclaim any VAT you are charged on goods or services that you use to set up your business.

Normally, this will include:
• VAT on goods you bought for your business within the last 4 years and which you have not yet sold.
• VAT on services, which you received not more than 6 months before your date of registration.

You should include this VAT on your first VAT return. (Notice 700/1 April 2010 4.2)

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000086&propertyType=document#P331_32574

steve@bicknells.net

Tax Break – Self Employed to your own Company

When you are Self Employed your pay tax in advance in January and July, but Companies pay tax 9 months after their financial year end.

So if you formed a Company and it started trading in April 2011, its year would end 31st March  2012 and Corporation Tax would be due in December 2012.

As a director of your own company you will be paid as an employee (PAYE) and get paid dividends as a Shareholder. Dividends are paid out of taxed profits.

What this means is that a Director taking a minimal salary, will probably have a tax break of 12 plus 9 = 21 Months.

In addition the company will buy the assets of the sole trader and it may be possible to include a value for goodwill.

steve@bicknells.net

Self Employed Tax Allowances

Basically when you are self employed you spend money on 3 types of expense:

1. Capital Expenditure – Equipment & Vehicles

2. Business Expenditure – stock, wages, premises

3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses

In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.

For example, you could claim capital allowances on your car,

Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2011 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:

Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 10 per cent) = £2,000
Value to carry forward = £18,000
Capital allowance you can claim = £2,000

If you use your car partly for private and partly for business you simply disallow a % for private use.

On other assets there is an Annual Investment Allowance which is currently £100,000 per year but will drop to £25000 in April 2012.

For most business that will cover all their capital expenditure, but there are further allowances available too.

With regard to private expenditure, there are tax reliefs available for working from home

http://www.hmrc.gov.uk/incometax/relief-household.htm

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm

steve@bicknells.net

How to claim tax relief for employment expenses

As an employee you can claim tax relief for expenses incurred in doing your job, 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 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

steve@bicknells.net

 

Telephone

Self Assessment

Help and advice for customers completing their tax return and supplementary pages, or who need general advice about Self Assessment
Please have your Unique Taxpayer Reference number with you when you phone
Opening hours
8.00 am to 8.00 pm, Monday to Friday
8.00 am to 4.00 pm Saturday
Closed Sundays, Christmas Day, Boxing Day and New Year’s Day
0845 900 0444

Tax Refund for Business Mileage

Many employers pay their employees expenses for business mileage, but often the amount they pay is below the HMRC approved rates shown below.

If your employer pays at rates below the HMRC Approved Rates you can claim tax relief on the difference, this can add up to a lot of money particularly for site based staff who can count travel to temporary places of work as business travel or for workers who’s place of work is their home.

You can claim the tax relief via your self assessment return or by writing to HMRC.

steve@bicknells.net

Travel – mileage and fuel allowances

Approved mileage rates
From 2002/03 to 2010/11 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 40p 25p
Motor cycles 24p 24p
Bicycles 20p 20p
Approved mileage rates
From 2011/12 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 45p 25p
Motor cycles 24p 24p
Bicycles 20p 20p

 

How cash accounting can improve your cashflow

Cash Accounting is a VAT scheme and it will improve your cashflow if your customers pay more slowly than you pay your suppliers and other costs. For example if your clients pay on 60 to 90 day terms and you pay suppliers on 30 days then VAT Cash Accounting should work in your favour. When you use Cash Accounting you pay VAT based on money received and money paid (so you exclude customers who havent paid).

You can use the Cash Accounting Scheme if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million.

Once you start to use cash accounting, you can continue to do so until your VAT taxable turnover reaches £1.6 million.

You can use Cash Accounting with other VAT Schemes, for example the Flat Rate Scheme.

You do not need to complete an application form or advise HM Revenue & Customs (HMRC) to start using the Cash Accounting Scheme.

You can start using the Cash Accounting Scheme at the beginning of any VAT period if you are already registered for VAT

Why pay VAT before you need to?

steve@bicknells.net

Cut your Income Tax by 50% from April 2012 – Start a New Business

As part of the Autumn Statement, the George Osborne annouced:

From April 2012, anyone investing up to £100,000 in a new start-up business will be eligible for income tax relief of 50%. In 2012, any tax on capital gains invested in such businesses will also be waived.

http://www.bbc.co.uk/news/business-15937366

This has to great news for new businesses planned to start up next year as every new business has demand for some level of investment.

steve@bicknells.net

Simplify your Payroll Year End with Dispensations

Dispensations are granted by HMRC for expenses and benefits and remove the need for P11D’s and P9D’s.

The main expenses routinely covered by a dispensation are:

  • travel, including subsistence costs associated with business travel
  • fuel for company cars
  • hire car costs
  • telephones
  • business entertainment expenses
  • credit cards used for business
  • fees and subscriptions

Provided you have someone checking expense claims and the claims arent excessive, you wont need receipts.

Its worth getting your dispensations now rather than applying in the new year as if you dont get them before April you will end up filling in P11D’s and P9D’s.

steve@bicknells.net

Have a party! £150 per head is tax free

Its will soon be Christmas and its definitely party season, did you know that you can spend £150 per head per year on parties and functions and its not a taxable benefit to the employee and you can reclaim the VAT on entertaining employees.

You can have multiple events, the exact rules are

http://www.hmrc.gov.uk/manuals/eimanual/eim21690.htm

So what are you waiting for? book up now or if you’re a small business you could even hold the party at your home

steve@bicknells.net