Do we need lookthrough taxation? NO Reply

the mirror

This month (November 2016) the Office of Tax Simplification published their Final Report on Lookthrough Taxation.

The proposal was that for Small Companies instead of charging the company tax (corporation tax), tax (income tax and national insurance) would be charged directly on the stakeholders based on their share of the profits. The end result being that Small Companies are treated in the same way as Sole Traders.

Back in July the OTS asked this key question Overall would lookthrough deliver simplification? and the answer was NO

Many suggested that it would discourage entrepreneurs and reduce funds retained in the business.

There are also complications such as Directors Loan Accounts and Salaries (including to family members).

Introducing lookthrough tax would have meant shareholders would be subject to Income Tax and Class 4 NI on company profits.

This could be the for runner to a longer study comparing Employees to Sole Traders to Companies.

For now common sense has prevailed.

The OTS report states Our conclusion is that lookthrough does not offer sufficient simplification to justify its introduction. On balance we feel that it would be more complicated than the current tax system, given the additional rules that would be needed

steve@bicknells.net

 

 

What if you buy personal items on a business credit card or BBX card? Reply

couple using credit card to make online purchases

Sometimes its accidental, using the wrong card linked to say Amazon, and sometimes its because it makes sense, for example with BBX.

For example BBX have a trade show which focuses on personal purchases

bbx-christmas

Self Employed

If you’re self employed then any personal spending is Drawings.

Drawings don’ affect your tax as you pay tax based on your profit.

Company Directors

The most common treat is to post personal expenses to the directors loan account. This is a balance sheet account and shows the balance the director owes to the company or that the company owes the director.

The Directors Loan Account is often cleared with dividends.

Alternatively the personal expenditure could be treated as additional salary or as a benefit in kind.

You can’t reclaim VAT on personal expenditure.

Whatever you do make sure the Directors Loan isn’t overdrawn 9 months after year end or you will pay an additional temporary tax charge.

https://stevejbicknell.com/2016/06/22/hmrc-directors-loan-2016-rules/

https://stevejbicknell.com/2016/05/31/how-can-you-avoid-being-taxed-on-a-directors-loan/

steve@bicknells.net

 

How many BBC Presenters are at risk under IR35? Reply

Woman with microphone

IR35 is a nightmare for contractors, since it came into force on the 6th April 2000, it has never been clear cut as to whether a contractor is in or out of IR35. Being in IR35 means paying a lot more tax.

There are a range of factors to consider, including:

1. The nature of the contract and written terms
2. Right of substitution
3. Mutality of obligation
4. Right of control
5. Provision of own equipment
6. Financial risk
7. Opportunity to profit
8. Length of engagement
9. ‘part and parcel’ of the organization
10. Entitlement to employee-type benefits
11. Right of termination
12. Personal factors
13. The intention of the parties

HMRC estimate that there are 200,000 personal service companies.

Since July HMRC have been pursuing BBC Presenters and so far it looks like 100 presenters are on their list, this will of course be the tip of iceberg and many more will be caught if HMRC win.

Why can’t we just have a simple online test for IR35 as we do with employment status! it would save so much confusion

steve@bicknells.net

Why is international VAT so complicated! Reply

Stress business woman

EU VAT is a nightmare.

Here is an example of why its complicated…

Before 1st January 2015 all businesses supplying telecommunications, broadcasting and e-services such as downloaded ‘apps’, music, gaming, e-books and similar services to private consumers located in other EU Member States (referred to as ‘B2C’ supplies) were taxed where the business supplier was established, which is simple to understand and implement.

Since 1st January 2015 VAT is now charged in the country where the customer has ‘use and enjoyment’ of the services.

So lets say you are an American (normally zero rated) on holiday in France, even though you pay with an American credit card and buy from a UK supplier because you are reading your ebook in France, French VAT will apply. Sounds like a nightmare, doesn’t it.

To help with this HMRC introduced the VAT MOSS (Mini One Stop Shop).

Then there is is the VAT return….

Box 2 Acquisition Tax is calculated as UK VAT due on VAT free purchase of goods from other Member States, i.e. 20% x Box 9 figure, the same amount is then entered in Box 4 (as noted below by HMRC) so the net effect is Zero.

Box 9 Total EU Purchases are the value of goods bought from other EU Member States on a VAT free basis.

The following are HMRC’s instructions:

Box 2: VAT due from you (but not paid) on acquisitions from other EU countries

You need to work out the VAT due – but not yet paid by you – on goods that you buy from other EU countries, and any services directly related to those goods (such as delivery charges). Put the figure in Box 2. You may be able to reclaim this amount, and if so remember to include this figure in your total in Box 4.

Box 4: VAT reclaimable on your purchases

This is the VAT you have been charged on your purchases for use in your business. You should also include:

  • VAT due (but not paid) on goods from other EU countries and services directly related to those goods (such as delivery charges) – this is the figure you put in Box 2

http://www.hmrc.gov.uk/vat/managing/returns-accounts/completing-returns.htm#4

If you trade regularly with the EU you may be required to do Intrastat Returns

Here is a useful guide from Sage.

steve@bicknells.net

Will Making Tax Digital (MTD) make life easier for you? Reply

mtd

 

One of the big areas of concern has been over the quarterly tax reporting requirements and concerns over data accuracy, as a result, the government has given exemptions for small businesses which will mean 5.4 million small businesses won’t now need to report quarterly.

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.

steve@bicknells.net

Is your Salary Sacrifice going to be taxed? Reply

Parking design

Its a busy time for Government Consultations, we have one currently underway called

It runs until 19th October 2016.
Some salary sacarifice items will be protected from any changes:
  • Workplace Childcare
  • Employer Pensions
  • Cycling to work

But everything else is up for grabs for example parking…

Parking

 

Which of your salary sacrifices are at risk?

 

steve@bicknells.net

Do you struggle to understand your accountant? 1

omg man

Let’s face it, tax is complicated, accounting is generally seen as boring but essential and most business owners are focused on their business and don’t focus on the numbers, that’s why they need accountants to keep them on track with:

  • Business Plans
  • Budgeting and Forecasting
  • Cash Flow Management
  • Buy or Rent decisions
  • Capital Investment Appraisal
  • Accounting Procedures and Systems
  • Business Strategy
  • Busines Funding and Investment
  • Tax Planning
  • KPI’s

Let’s work together to help you understand and feel in control.

We aren’t all boring!

In fact its actually exciting to help business achieve their goals.

 

 

Accountants

ICAS reported recently based on IFAC research..

SMEs were shown to traditionally rely on accountants as a main source of business advice. One study identified an 8.1% average increase in sales growth and a 29% decrease in likelihood of failure for businesses using an external accountant.

Work with us and we will help to you to succeed.

 

steve@bicknells.net

Is my training tax deductible? 1

Training Practice Workshop Mentoring Learning Concept

Training courses can be expensive, in this blog we are going to focus on the self employed.

The key rules are contained in BIM42526

Specific deductions: administration: own training courses

Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

Business purpose test

In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.

Capital test

Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others [2006] EWHC2491 (Ch)

Let’s take the example of Property Courses

There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.

What courses are claimable:

  • Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax

What courses are not claimable:

  • Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
  • New Skills – you want to learn something new for example you currently let property and want to learn how to do property development

If the course is disallowed the travel costs will also be disallowed

What about companies?

The rules for companies are much easier to comply with and written with a much wider scope..

Income Tax (Earnings and Pensions) Act 2003

Section 250 Exemption of work-related training provision

(1)No liability to income tax arises by virtue of—

(a)the provision for an employee of work-related training or any benefit incidental to such training, or

(b)the payment or reimbursement to or in respect of an employee of—

(i)the cost of work-related training or of any benefit incidental to such training, or

(ii)any costs of a kind specified in subsection (2) in respect of such training.

(2)The costs are—

(a)costs which are incidental to the employee undertaking the training,

(b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

(c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

Section 251 Meaning of “work-related training”

(1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

(a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

(b)will qualify or better qualify the employee—

(i)to perform those duties, or

(ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

(2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

(a)is to hold,

(b)has a serious opportunity of holding, or

(c)can realistically expect to have a serious opportunity of holding in due course.

steve@bicknells.net