Category Archives: Bicknell Business Adviser

How do you keep up with company secretarial work? Reply

Bicknell Business Adviser • Tags: ,

In business everything is run by dates.

There are so many filing and payment dates its hard to keep track of them and if you are an accountant the problem is multiplied by the number of clients.

We use inform direct for all the companies we work with, its a brilliant system that monitors everything for you and helps you produce the paperwork needed.

On their website they have published the 2018 Review of UK Company Formations

634,116 new businesses were formed in the UK in 2017.

52,411 businesses registered in Dorset at the end of 2017.

https://www.informdirect.co.uk/company-formations-2017/dorset/

steve@bicknells.net

Rising rents and clause 24 Reply

Bicknell Business Adviser • Tags: ,

On the 28th February 2018, MSN and the Daily Mail reported

Experts warn of buy-to-let crunch as landlords sell off unprofitable properties and hike rents

David Cox, ARLA Propertymark chief executive, said it pointed to ‘a rough ride’ for renters in 2018.
‘Housing stock is falling as rising taxes continue to force established landlords out of the market and deter entry into the sector,’ he said.
‘And the volume of renters is increasing as the cost of buying a home is moving further out of reach for many. The fact that one in five tenants is experiencing rent increases is just another blow.
‘Ultimately, until the prospect of investing in the buy-to-let market is more attractive for prospective landlords, and stock subsequently increases, tenants will continue to feel the burn.’

We have known for some time that Landlords have been hit hard by recent tax changes:

  • Clause 24 restricting relief for interest
  • 8% extra capital gains tax
  • 3% extra stamp duty

https://stevejbicknell.com/2018/01/29/how-much-extra-tax-do-property-investors-pay/

We also know that Companies are a better way to invest in property for most investors because

  • Clause 24 doesn’t apply
  • The extra 8% capital gains tax doesn’t apply to Share Sales
  • The stamp duty on shares is 0.5%

It hardly surprising that individual property investors will be increasing rent to cover the extra taxes.

Some landlords with high levels of borrowing will definitely start selling off properties to avoid clause 24, which will lead to some landlords becoming insolvent.

https://stevejbicknell.com/2017/09/18/how-will-clause-24-affect-you/

But for those Landlords investing via Companies, the higher rents will lead to enhanced profits.

steve@bicknells.net

 

 

If you build a new building is it covered by the previous buildings option to tax? Reply

Bicknell Business Adviser • Tags: ,

Croner Taxwise question of the week covered this

My client purchased a small industrial unit in 2010 on which he was charged VAT. He lodged an option to tax on the building and charged the tenant VAT on the rent. The last tenancy expired in 2014 but he found he could not get a new tenant easily because the unit was built in the early 1970s and businesses looking to rent space were more attracted by newer units with modern facilities. My client decided that to reap real benefit from the investment he would demolish the existing unit and build a new one on the site, which would then command a higher rental figure. He has now done this at a cost of around £100,000 and is ready to market the unit for rental. He is assuming that he will not charge VAT on rents to any new tenant as he has not lodged an option to tax on the new property. Is he able to do this?

Legislation on the option to tax underwent some changes in 2008 and since then it has no longer been possible to opt land and buildings separately. This means that the option to tax made on the unit in 2010 covers not only the original unit, but also the land on which it was built and also to any buildings later constructed on that land if the original building is demolished. Therefore in your client’s case, as he opted to tax the unit, the option is still in force and will apply to his supplies of the new unit, and allow him input tax recovery on the redevelopment.

The corollary is also true that if he had placed an option to tax on the land then that option would apply to any buildings on the land at the time of the option and to any future buildings constructed on the land. However, where the option to tax has been made on land, rather than on a building, it is possible to exclude a new building constructed on the opted land from the option to tax, provided the new building is not within the curtilage of any existing building. Notice 742A explains how this is done in paragraph 2.7.

VAT Notice 742A

2.4 What is covered by the option to tax?

2.7.1 In what circumstances can I exclude a new building from the effect of an option?
If you construct a new building on opted land (and that building is not within the curtilage of an existing building – for the meaning of ‘curtilage’, see paragraph 2.4) you may exclude the new building (and land within its curtilage) from the effect of the option to tax by notifying us of the exclusion.
If you decide to do this, the new building will be permanently excluded from the effect of your existing option to tax. But you may, if you wish, make a fresh option to tax in the future, subject to obtaining permission from us if appropriate – see Section 5.
If you choose to exclude a new building from the effect of an option to tax this may affect your entitlement to recover input tax on your costs. See Section 9 for further information about input tax.

 

steve@bicknells.net

What is the optimum pay for business owners in 2018/19? Reply

Bicknell Business Adviser • Tags: ,

Directors aren’t subject to Minimum Wage rules and if they are the only paid employee then they don’t need an auto enrolment pension.

So assuming they don’t get a salary from another job, it generally makes sense for Directors to be paid above the NI Lower Earnings Limit and below the Employee’s primary class 1 contributions level.

The LEL for 2018/19 is £116 per week and the Primary Threshold is £162 per week.

So that’s £6,032 to £8,424 per year.

Earning above the LEL means directors will qualify for certain state benefits.

If the company has other employees and they earn sufficient to incur national insurance then you could pay more to the director and take advantage of the Employment Allowance of £3,000 which offsets employers national insurance.

The personal allowance will be £11,850 for 2018/19, that’s how much you can earn tax free.

Higher rate tax starts when total earning hit £46,350.

The Dividend Allowance drops from £5,000 to £2,000 in 2018/19

steve@bicknells.net

 

Does adopting CSR make you more profitable? Reply

Bicknell Business Adviser • Tags: ,

Many businesses falsely believe that adopting Corporate Social Responsibility will make them less profitable but the evidence and expert opinion actual suggests the opposite.

The truth is that customers, suppliers and society as a whole are placing increased importance on CSR. This trend is likely to further increase as government spending is cut further and the uncertainty of BREXIT gathers pace.

The success of CSR depends on how you embrace it, here some approaches originally identified by McKinsey:

Pet Projects

These projects reflect the interests of the senior management but often don’t live up to expectations.

Philanthropy

Generally this type of CSR is donation based and tend to benefit society more than the company

Propaganda

This type of CSR is designed to enhance the company’s reputation, its often seen as type of advertising

Smart Partnering

These partnerships move beyond the three areas above and work to improve employment, quality of live and living standards. These partnerships are see as providing the highest benefits for Society and the Business.

steve@bicknells.net

The Digital Records Trap – Will HMRC catch you out? Reply

Bicknell Business Adviser • Tags: , ,

Historically many companies have written up board minutes and in some cases declared dividends retrospectively at the end of year, but times are changing!

In the age of cloud accounting and making tax digital HMRC will know exactly when entries are posted and when documents are signed.

Unreliable records were a major factor in Dr Maqbool Baloch v HMRC, Dr Baloch a locum doctor was forced to pay £0.5 million in tax and penalties!

Dr Baloch tried to argue that he was employed via his Limited Company – KSM Medics Ltd – but the paperwork didn’t tie up – there were board minutes for meetings which HMRC could prove didn’t take place. As a result he was treated as Self Employed because he ticked a box that said he was self employed for his agency work even though Dr Baloch argued this was not a contract.

From April 2019 Making Tax Digital will apply to VAT, this will give HMRC access to real time information direct from your accounting records and time stamped.

In order to avoid problems preparing or extracting monthly accounts will mean dividends can be declared in the correct time periods.

steve@bicknells.net

 

Is TOMS an option for Serviced Accommodation VAT? Reply

Bicknell Business Adviser • Tags: , ,

TOMS is the Tour Operators Margin Scheme (VAT Notice 709/5).

It is a special scheme for businesses that buy-in and re-sell travel, accommodation and certain other services (see paragraph 2.9) as a principal or undisclosed agent (that is, acting in your own name).

TOMS does not apply to:
# supplies you have arranged as a disclosed agent/intermediary and your commission is readily identifiable (see paragraphs 2.14 and 6.7)
# in-house or agency supplies you make which are not packaged/supplied with margin scheme supplies (see paragraphs 2.12 and 2.13)
# supplies you make to business customers for subsequent resale by them (that is, wholesale supplies), or
# supplies that are incidental to your other supplies (see paragraph 3.6)

If you are registered for VAT, you must normally account for tax on the full selling price of your supplies, but you can reclaim the VAT charged on purchases (subject to the normal rules).

Under the TOMS, you cannot reclaim any UK or EC VAT charged on the travel services and goods you buy-in and re-supply – the tax on such goods or services is accounted for in the relevant Member State by the providers of those services (hotels, airlines and so on).
However, as a tour operator based in the UK, you only account for VAT on the margin you make on your margin scheme supplies (see paragraph 2.7), that is, the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers.

A margin scheme supply is defined in law (see paragraph 1.2) as a ‘designated travel service’.
This means it is a supply of goods or services which is:
bought in from another person and re-supplied without material alteration or further processing, and
supplied by a tour operator from an establishment in the UK, for the direct benefit of a traveller – see paragraph 2.8

The following are always margin scheme supplies:
# accommodation
# passenger transport
# hire of a means of transport
# trips or excursions
# services of tour guides
# use of special lounges at airports

The reason why this would be useful for Serviced Accommodation is because often its done on Rent to Rent basis and the landlord supplies Residential Accommodation (which exempt from VAT), Serviced Accommodation is Vatable (if you cross the £85k threshold), so the VAT bill would be lower using TOMS. However, its not like a normal tour operator, normally they would buy in holiday accommodation not residential accommodation!

So before using TOMS you should get prior approval from HMRC after full disclosure of all the facts.

Surely in these circumstances HMRC would want the original landlord to change the status from Residential to Holiday Accommodation so that they will become subject to VAT?

steve@bicknells.net

 

How much extra tax do Property Investors pay? 2

Bicknell Business Adviser • Tags: , ,

Recent tax changes such as Clause 24 Interest Restrictions, 3% extra SDLT and 8% extra Capital Gains Tax have hit landlords hard and these NLA videos explain the full impact

http://nla-video-graphic.s3-website-eu-west-1.amazonaws.com/

The NLA predict that the changes will mean that 20% of Landlords will sell their portfolios.

Since September lenders to Portfolio Landlords have been required to look at the whole portfolio before lending and this has lead to 70% of landlords with four or more properties saying that they have found it hard to obtain finance.

Overall Residential transactions have seen a slight decline in activity

Since 2015 more and more landlords have been using Limited Companies to purchase property investments even though mortgage interest rates are a around 1% higher there are many advantages:

  • Clause 24 Interest Rate Restrictions don’t apply to companies
  • Lenders can take a specific change and a debenture over a company and this is why separate companies for each investment can be an advantage
  • If you sell the company shares rather than the property the buyer will pay 0.5% SDLT on the shares, the capital gains tax on shares is 8% lower than on residential property and the potentially the company purchaser can takeover the existing debt without needing to refinance
  • Corporation Tax is 19% where as Landlords pay Income Tax rates, which means companies can help you to build a portfolio quicker as you retain more profit

steve@bicknells.net

 

 

Do you try to buy from local and UK suppliers? Reply

Bicknell Business Adviser • Tags: , ,

We are rapidly approaching BREXIT in March 2019 and its highly likely to cause currency fluctuations, that alone has to be a good reason to source products and services locally.

There are of course many other reasons such as:

  • Consumers are often prepared to pay for more locally sourced products
  • Its better for planet – why ship things hundreds of miles and pollute the planet if you can buy locally
  • It protects local jobs and services and helps the economy to grow

The Chartered Institute of Procurement and Supply reported

EU businesses say goodbye to UK suppliers as Brexit bites into key relationships
06 November 2017

Nearly two-thirds (63%) of EU businesses expect to move their supply chain out of the UK
Two-fifths (40%) of UK businesses are looking to replace their EU suppliers
25% of large UK businesses* have spent over £100,000 preparing their supply chains for Brexit
Nearly two-thirds (63%) of EU businesses who work with UK suppliers expect to move some of their supply chain out of the UK as a result of Brexit according to a survey from the Chartered Institute of Procurement & Supply (CIPS). This is a dramatic shift from May, when just 44% of EU businesses were expecting to move out of the UK.

So unless we start to support Local and UK businesses there could be significant consequence for the UK economy.

steve@bicknells.net

 

 

What if you don’t get your self assessment done in time? Reply

Bicknell Business Adviser • Tags: ,

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?

A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet, for example:

1. your partner or another close relative died shortly before the tax return or payment deadline
2. you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
3. you had a serious or life-threatening illness
4. your computer or software failed just before or while you were preparing your online return
5. service issues with HM Revenue and Customs (HMRC) online services
6. a fire, flood or theft prevented you from completing your tax return
7. postal delays that you couldn’t have predicted
8. delays related to a disability you have

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.

White Space

The Self Assessment Return contain additional information boxes, these are known as white space, use these spaces to explain your calculations if you have any doubt about the answers you have given

Penalties for Late Filing

  • 1st Feb 2018 – £100 for missing the deadline
  • 30th April 2018 – £10 per day for 90 days after your are 3 months late (£900 in total)
  • 31st July 2018 – 5% or £300 which is ever is greater if you are 12 months late
  • 31st Jan 2019 – £300 or possibly 100% of tax due if deliberate

On top of these penalties there are also penalties for non payment

steve@bicknells.net