What’s happening to CIS after April 2016?

at a construction site

The changes are outlined in this document – CIS Link

Key Changes

  • Reducing the Gross Status minimum turnover threshold to £100,000 a year for businesses with multiple directors (from April 2016)
  • Initial and annual compliance tests will focus on fewer obligations
  • There will be further amendments to the need to submit Nil returns
  • It will be easier for Joint Ventures to obtain Gross Status if one party already holds Gross Status
  • Online verification will be mandatory from April 2017
  • Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.
  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.
  • You must re-submit returns for any period that you amend

We await the budget on 16th March 2016 for full details.

steve@bicknells.net

Thank you Mr Osborne – we like pensions the way they are!

This is exactly how I pictured the partners lounge

Hooray!!!

On the 5th March George Osborne announce that he would drop the changes that were proposed on 20th January 2016.

The changes that had been proposed were…

The ISA idea

Currently you get tax relief when you pay into pensions and pay tax when you take the money out (after taking 25% tax free), the plan under discussion is to change that so that taxed income goes in and growth in the fund is tax free, like ISA’s.

I think we can all agree the current system is much better, I can’t see that making pensions like ISA’s will encourage investment

Flat Rate Tax Relief

The other plan under discussion is to introduce a flat rate of tax relief on contributions into pension schemes, this would replace the current system where tax relief is based on the actual tax rate you pay.

The BBC explained how this might work

At the moment, basic rate taxpayers receive 20% tax relief, higher rate taxpayers receive 40%, and those with the highest incomes receive 45%.

It is thought that this system could be replaced with a flat rate of anything between 25% and 33%.

Millions of high earners would lose out in such a system, but basic rate taxpayers would stand to gain.

http://www.bbc.co.uk/news/business-35360978

Pot of gold coins isolated on white

Pensions are a fantastic way to save tax…

Inheritance Tax

IHT only applies if the pension company has to pay the value of your scheme to your estate, in which case it becomes like any other asset, but generally the pension pot is held in a discretionary trust, which means it isn’t taxed on death.

You can now nominate anyone not just dependents to be the beneficiary.

Since 6th April 2015 anyone who inherits a pension fund from a person who dies before the age of 75 is entitled to receive it tax free and the you can take the money as a lump sum or income. Once over 75 a special tax of 45% applies (previously 55%), you could reduce this by taking a regular income. The tax rate should drop again in April 2016.

Business Premises

Your pension can own Commercial Property, including your own business premises.

In many cases it is better for business premises to be owned by the business owners pension fund because:

  1. The object of the business is not to own its own property, the objective should be for the business to make profits from trading
  2. The business could use cash tied up in the premises to invest in trading activities
  3. Pensions are a very tax efficient method of ownership – no capital gains, no tax on rental profits
  4. Company Pension Contributions are Tax Deductible and Individual contributions get income tax refunds
  5. You may be able to use 3 year Carry Forward to get funds into your pension scheme

Commercial Investment Property

Your pension scheme can own commercial investment property – shops, offices, industrial units.

It can borrow up to a third of the value of the pension scheme.

There is no capital gains tax and no tax on the rental income.

In Specie Transfers

In Specie transfers can be used to move assets into your pension scheme this could incur capital gains and SDLT (Stamp Duty), but you will benefit from tax relief as if you had paid in cash. Currently that means at tax relief of between 20% and 45%.

Once the assets are in a pension scheme transfers ‘in specie’ between schemes are tax free (no capital gains) and no SDLT.

HMRC say…

In our view the assumption by the transferee fund or by the trustees of the transferee fund, of obligations to provide benefits is not chargeable consideration.

Net Relevant Earnings (NRE)

Many owner managed businesses only pay small salaries and take large dividends, this would normally restrict the level of pension contributions allowed, however, their companies can pay the maximum allowed – currently £40k per year.

Employer v’s Employee Pension Payments (Net Relevant Earnings)

Lend Money to your Pension Scheme

If you have a SSAS or a SIPP Pension you will probably want to invest some of your funds in Commercial Property – Shops, Office, Industrial Units. Pension funds can borrow money and with the current interest rates low and yields as high as 10%, you can increase your return and use less cash by borrowing.

But one thing you may not know is that connected parties can lend to the fund…

Trustees of registered pension schemes may sometimes wish to borrow funds, for example to enable them to purchase an asset. There is no objection to a registered pension scheme borrowing funds for any purpose providing that the scheme administrator/trustees are satisfied that the borrowing will benefit the scheme and that the borrowing is within the rules laid down by the Department for Work and Pensions (DWP).

A registered pension scheme is treated as borrowing or having a liability of an amount, if that amount is to be repaid or met from cash or assets held for the purposes of the pension scheme.

A registered pension scheme may borrow funds from any individual, company or financial institution whether or not they are connected to the scheme, but any borrowing from a connected party which is not made on commercial terms will be subject to a tax charge – see RPSM04104020 .

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm07104010.htm

This is useful where you have paid in the maximum allowed pension contributions but you still have cash, so you could lend to your pension to buy a property.

25% Tax Free

When you retire you get 25% of you pension fund tax free.

http://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-and-the-cash-lump-sum

Shares and Loans

SSAS Pensions can lend money to their scheme employer and the scheme employer can borrow from a SSAS subject to passing 5 tests.

steve@bicknells.net

Why doesn’t my accountant remind me to do things?

Calendar with thubmjacks

Every business has important dates to remember!

VAT Quarterly (or Monthly), filed one month and 7 days later paid by one month and 10 days later

PAYE/CIS Monthly – tax period to 5th of the month, filed by 19th paid by 22nd (you should remember monthly tasks without reminders)

RTI/FPS/EPS everytime you pay employees (you probably don’t need to be reminded to do this)

Company Accounts – due 9 months after year end, corporation tax payable 9 months and 1 day after year end

Self Assessment payments on account in January and July

Annual Returns on the 12 month anniversary of when the company started

Late Filing Stats

HMRC and Companies House apply tough penalties for filing late!

Its a common problem area, the fine comes in and then accountant and client blame each other

businesswoman is very multitasking

Its easy to understand how very large accounting practices simply lose track of when things need to be done

But it doesn’t have to be like this.

There are lots of ways your accountant could keep track of all the deadlines

Here is a list that I found on accountingweb posted by Howard Marks http://www.accountingweb.co.uk/anyanswers/question/practice-management-ultimate-list

AffinityLive (not accountant specific)

BTC PM Solution

Capium Practice Management

CCH Practice Management

CentreCRM

Digita Practice Management

Firmzen

Glide

HQ4A

Iris Practice Management

Logical Office

MB Practice Manager

OMS

Practice Flow

Practice Launchpad

Work etc (not accountant specific)

WorkflowMAX

My personal favourite is PracticeFlow, I have started using it for Bicknell Business Advisers.

Its not just dates you need to keep track of, if you are going to send out client reminders you will need UTR’s and amounts due. You Also need to track tasks and who has been allocated the work. PracticeFlow helps us do all of this and you can set sub-tasks and have 3 dates – start, planned to complete and deadline.

So why isn’t your accountant reminding you of important dates?

Last minute panics or penalties can be very stressful, makesure you know your deadlines or get reminders so that you can relax!

Working by the sea

 

steve@bicknells.net

Phoenixism – will new measures stop companies rising from the ashes

flame dove flying from yellow flire isolated on black

A phoenix company is a commercial entity which has emerged from the collapse of another through insolvency (wikipedia)

Phoenixism is a term used to describe the practice where directors carry on the same business or trade successively though a series of two or more companies. Each of the companies in turn becomes insolvent, leaving large unpaid Income Tax PAYE and NIC debts. A company will typically transfer its business, minus its debts, to the next company. Only essential trade suppliers will be paid in full before the transfer, so that Income Tax PAYE and NIC often remain deliberately outstanding.

The above example is typical of the type of case that HMRC is particularly interested in but it must be remembered that not all phoenix companies are ‘rogue companies’.

A Personal Liability Notice can be considered in situations where the directors attempt to ‘walk away’ from the debts of a failed company and resume management with a new company, sometimes indirectly as a ‘shadow director’ (see NIM12205). The new successor company will often trade from the same premises, using a similar name and with the same assets as the failed company.

Whilst not conclusive the following may indicate phoenixism and a potential Personal Liability Notice enquiry:

  • Rapid build up of NIC debts
  • Payment of selected debts e.g. trade creditors at the expense of HMRC liabilities
  • Transfer of assets, or sale of the assets by the liquidator to a new company or connected officer of the company, possibly at a lower than expected value. This may include transfer of work in progress.

But Phoenixism has also been used by property developers, but now new anti-avoidance tax rules should take away the tax advantages by making the distributions subject to income tax.

Implications for developing property

This could have a huge impact on the property sector, where it’s common practice for developers to set up a separate company to carry out each individual property development project. When the project is complete, the company is wound up. The use of separate companies followed by their liquidation is essential in managing risk. On liquidation, shareholders receive the retained profits as capital on which CGT must be paid. (Smith & Williamson)

We await the Budget in March for full details, but here is a link to the consultation

steve@bicknells.net

Is £277k a fair penalty for being 1 day late on VAT

Businessman and businesswoman in panic of the financial crisis

There have been a couple of recent cases that highlight the importance of filing and paying VAT on time. Both cases were argued on proportionality.

Blue Ocean Associates Ltd v Revenue and Customs (VAT – PENALTIES : Default surcharge) [2016] UKFTT 42 (TC) (26 January 2016)

VALUE ADDED TAX – default surcharge – return submitted one day late – with a penalty of £277,185.00  proportionate – yes

As the default which is the subject of the present appeal was the first such default by the Company in the surcharge period, the surcharge fell to be calculated at the rate of 2% on the amount which was paid late (£13,859,254.00) and was therefore £277,185.00.

Trinity Mirror PLC v Revenue & Customs [2014] UKFTT 355 (TC) (14 April 2014)

VAT – default surcharge – whether penalty proportionate – appeal allowed

In respect of the 06/07 VAT Period, Trinity Mirror was required to (1) make 2 payments on account of £1,546,965.00 each by, respectively, 31/05/2007 and 29/06/2007, and (2) file its VAT return and make a balancing payment of £5,467,130.92 by 01/08/2007.  Trinity Mirror made the 2 payments on account, and filed its VAT return, on time.  It made the balancing payment in full on 02/08/2007, that is, 1 day late.

The Penalty was £70,906.44

Its pretty clear from both cases that HMRC are getting tough on late returns and payments so its vital that businesses don’t miss deadlines!

steve@bicknells.net

Why your SME needs a CGMA CFO!

Flying Superhero

Many businesses require the skills of professionals to oversee and direct financial operations. These professionals are referred to CFOs, chief financial officers, or financial directors (FD).

So what should your Chief Financial Officer be doing for your business…..

1. The CFO should be able to look into to future to see what the future financial needs of the business will be
2. He/She should negotiate funding facilities to ensure the business can manage its cash flow needs
3. The CFO should be able to foresee the future tax consequences and risks of decisions
4. He/She should help the business to achieve the best possible credit scores
5. Identify ways to reduce costs and improve profitability
6. Understand the business owners objective and focus the business on achieving those objectives
7. Ensure financial and regulatory compliance
8. Ensure accurate and timely reporting of management information
9. Evaluate growth opportunities
10. Apply corporate governance

What key questions should you regularly ask your CFO…..

1. What is our cash cycle and how can we improve it – Cash Cycle Blog
2. What Key Performance Indicators should we use and what are they telling us – KPI Blog
3. How can we improve profitability – 15 ways to improve profitability Blog
4. What is our Business Plan and is it the right plan – How can you create a Business Plan
5. Can we reduce Overheads – 10 creative ways to reduce overheads Blog

Many smaller businesses and SME’s can’t afford a Full Time (or even in some cases a Part Time CFO or FD) but they need help 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
• KPI’s

Expert Advice Fotolia

Virtual FD’s fill this gap because:
1. You only pay for what you need
2. There is no employment contract
3. It provides access to higher level of expertise (in theory)

But be careful who you choose. There is no law preventing anyone from calling themselves an accountant, and as a result small businesses are unknowingly paying someone without the necessary skills to handle their finances and help their business grow.

So what experience does your accountant have to show that they have the skills to be your Virtual FD?

I am sure that in theory they have the technical skills but is that enough?
With the exception of CGMA (CIMA) accountants many accountants in practice have never worked in business let alone been a Finance Director!

I happen to think that time served experience as a CFO does make a difference because it greatly improves your insight and skills.

Would you get on a plane with a Pilot who in theory knew how to fly but had never actually piloted a plane before?

When you choose a Virtual FD you are trusting them with the success of your business. Choose wisely!

CIMA operates a Masters degree standard scheme of qualifying examinations for prospective members. It is active in promoting local education, training and management development operations, the promotion of new techniques through its research foundation and the dissemination of management accounting practices through publications and other media related activities. WIKIPEDIA

Chartered Global Management Accountant™ (CGMA®) is the global designation for management accountants. It’s powered by the resources and expertise of AICPA and CIMA, two of the world’s leading accounting organisations.

steve@bicknells.net

 

What are the rules for claiming reduced VAT on conversions?

mounting thermal insulation boards

VAT Notice 708 has the exact details and whether or not the 5% rate can be used is a matter of fact not opinion. HMRC will not give specific clearance, they will refer you to the rules and ask you to check the rules with your builder for your project.

The property owner doesn’t issue a certificate (as would be needed to Zero Rating), its for the builder/developer to determine whether and on what the 5% VAT rate can be applied.

The basic conditions for reduced-rating the conversion of premises to a different residential use

7.1.1 Introduction

If you carry out work to an existing building you will normally have to charge VAT at the standard rate. You may, however, be able to charge VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’ – see paragraph 14.4
  • a different number of ‘single household dwellings’ – see paragraph 14.4
  • a ‘multiple occupancy dwelling’, such as bed-sits – see paragraph 14.5, or
  • premises intended for use solely for a ‘relevant residential purpose’ – see paragraph 14.6

Example 1

A block of flats consists of 4 floors, each with 4 flats. A lift is installed and work is carried out throughout the whole building. On the ground, first and second floors the footprint of each flat is changed to take account of the new lift. This results in the internal configuration of each flat being changed. On the third floor 3 penthouse flats are created from the original 4.

Although the overall number of single household dwellings in the building has changed (there has been a reduction by one unit) only the work to convert the third floor will be eligible for the reduced rate because it is only in this part of the building that the number of dwellings has changed. But see also the next example.

Example 2

Taking the above example, if the reduction in the number of flats on the third floor happens by combining 2 of the original flats together – the other 2 being refurbished – then the reduced rate will only apply to the work to merge the 2 flats together.

Example 3

Taking example 1, as well as the changes to the top floor, the number of flats on the ground floor is changed to 5 smaller units. In this example, the overall number of dwellings in the building has not changed (there are 16 units both before and after the work). However, as parts of the building are examined independently, and because the respective parts of the building meet the conditions at paragraph 7.3, the reduced rate can apply to the work to convert those parts.

What services can I reduced-rate?

Other than installing goods that are not building materials, you can reduced-rate any works of repair, maintenance (such as redecoration), or improvement (such as the construction of an extension or the installation of double glazing) carried out to the fabric of the building.

You can also reduced-rate works within the immediate site of the premises being converted that are in connection with the:

  • means of providing water, power, heat or access
  • means of providing drainage or security, or
  • provision of means of waste disposal

All other services are standard-rated. For example, you must standard-rate:

  • the installation of goods that are not building materials, such as carpets and fitted bedroom furniture
  • the erection and dismantling of scaffolding
  • the hire of goods
  • landscaping
  • the provision of professional services, such as those provided by architects, surveyors, consultants and supervisors

7.6.1 Garages

You can reduced-rate the:

  • conversion of an outbuilding into a garage
  • construction of a new detached garage, and
  • the construction of a drive serving the garage

provided:

  • the garage is intended to be occupied with the ‘single household dwelling’, ‘multiple occupation dwelling’, or the premises intended for use solely for a ‘relevant residential purpose’ resulting from the qualifying conversion, and
  • the work is carried out at the same time as the qualifying conversion

Please note however that you cannot reduced-rate the provision of a hardstanding unless it is also used as an access.

If you carry out work that requires statutory planning consent or statutory building control and it has not been granted, then your work is standard-rated.

steve@bicknells.net

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How to use Sage One for property accounting

To Let

Whether you choose to set up your property investment business as a Sole Trader, Partnership or Limited Company you will need to keep accounting records.

Landlords need to register for Self Assessment and companies need to file accounts and pay Corporation Tax.

You will need to keep track of the rental income and claim allowable expenses

  • Mortgage or Loan Interest (but not capital)
  • Repairs and maintenance (but not improvements)
  • Decorating
  • Gardening
  • Cleaning
  • Travel costs to and from your properties for lettings or meetings
  • Advertising costs
  • Agents fees
  • Buildings and contents insurance
  • Ground Rent
  • Accountants Fees
  • Rent insurance (if you claim the income will need to be declared)
  • Legal fees relating to eviction

How can Sage One help you?

Rent Collection

Sage One is cloud based which means you can access your records 24/7 on any device but more than that you could invoice your tenants and put a pay now button on their invoice (using Sage Pay).  Making it easier to pay and track rent will keep you in control.

Work with your accountant

Sage One has accountant access so your accountant can help you quickly resolve queries and provide advice, no more print out and back ups.

Budgeting and Planning

You can use the Sage One help plan your cash flow and Sage One has build in Cash flow Forecast based on supplier and tenant payments

Connected Bank Accounts

Sage One links to you bank account so you can always be up to date on rent collected

Multi User Access

As you business grows you can allow others to have access which you can control

Reporting

You could set up each property as a ‘Project’ and runs reports for each property or all properties. Here the analysis codes you can use:

Type Examples of use
Department Sales divisions, regional sales.
Cost centre Business locations.
Project A specific property or planned work.

You can also use Nominal Codes for analysis.

steve@bicknells.net

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How do you claim VAT Bad Debt Relief?

Debt Envelope Scattered Stack

VAT Notice 700/18 sets out the basic rules

Conditions for claiming bad debt relief

Number Condition(s)
1. You must already have accounted for the VAT on the supplies and paid it to HM Revenue and Customs.
2. You must have written off the debt in your day to day VAT accounts and transferred it to a separate bad debt account.
3. The value of the supply must not be more than the customary selling price.
4. The debt must not have been paid, sold or factored under a valid legal assignment. (See paragraph 3.12).
5. The debt must have remained unpaid for a period of six months after the later of the time payment was due and payable and the date of the supply (one year after the date of supply for supplies made from 1 April 1989 to 31 March 1992), and
6. If the goods were supplied before 19 March 1997, ownership must have passed to your customer, or through the customer to a third party.
7. For supplies made to a VAT registered customer between 26 November 1996 and 30 April 1997, you must send a notice to them. A copy of the notice must also be retained. (See paragraph 2.7 for an example).

 

You must wait at least six months from the later of when payment was due and payable or the date of supply. The due date for payment may be determined by your normal credit terms, or by any longer period for payment which you agree with your customers. You cannot claim on a return for an accounting period earlier than the one in which you become entitled to the relief.

For supplies made after 30 April 1997, you must claim within four years and six months of the later of, when payment is due and payable or the date of supply.

Do I have to keep any records?

Yes, when you can claim a refund you must keep:

  • a copy of the VAT invoices for the supplies on which you are claiming a refund. (If you did not issue a VAT invoice you must have a document showing the equivalent information), and
  • a separate bad debt account showing the:
    (a) amount you have written off as a bad debt
    (b) amount of VAT you wish to claim as bad debt relief
    (c) VAT period in which you have claimed a refund
    (d) total amount of VAT charged on each supply
    (e) VAT period in which you originally accounted for VAT on the supply
    (f) payment received for each supply
    (g) name of your customer, and
    (h) date and number of the invoice to which the bad debt relates. (If you did not issue an invoice you must include sufficient information to allow the time and type of the supply to be readily identified)
    (i) a copy of any notice issued

Important things to note

  1. For Sales after 1st January 2003 it is not necessary to inform the customer that you are claiming bad debt relief
  2. The Bad Debt Relief Account is not part of the statutory accounts and does not mean the bad debt has been written off
  3. The Bad Debt Relief Account is often kept as a separate manual record supplementary to the main VAT records
  4. The VAT Bad Debt Reclaim is entered as Input Tax in period in which it is claimed
  5. Any money which comes in subsequently is considered to include VAT

steve@bicknells.net

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Self Assessment Season Statistics 2016

SA100 tax return form with calculator and pencil lying on table

Self Assessment facts summary:

  • 11.26 million SA returns due
  • 10.39 million returns were received in total
  • Around 870,000 SA returns not submitted by 31st January 2016
  • 10.39 million returns received by midnight on 31 January (92% of total issued)
  • 9.24 million returns filed online (89%)
  • 1.14 million returns filed on paper (11%)
  • More than 4.45 million returns received in January 2016 (43% of total received)
  • 823,000 returns received on 30 and 31 January (18% of total returns received in January)
  • Busiest hour: 14:00 – 15:00 on 29 January – 50,358 returns received (839.3 per minute; 13.9 per second).
  • N.B. The figures are sourced from Self Assessment management information from the Computerised Environment for Self Assessment as at 01 February 2016 for the 2014-15 tax year.

steve@bicknells.net

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