Are you ready for Auto Enrolment?

Staging Dates

The tidal wave of small businesses going through Auto Enrolment has now started with the peak being next year in 2016/17.

So what do you need to do before you stage?

  1. Find out your staging date, this the date when your obligation under Auto Enrolment will start, the Pension Regulator calculator is a good place to start
  2. Nominate a person to be the Pension Regulators key contact and register their name with the Regulator
  3. Draw up a Project Plan and consider whether you need help (60% of companies currently staging have decided they do need help! and most businesses will start by asking their accountant to help with project management)
  4. Choose a Pension Provider – Nest, Now Pensions and The Peoples Pension are the 3 largest
  5. Makesure your Payroll can provide the analysis needed – Brightpay works with the providers shown below, does your payroll?

BrightPay Pensions

In addition you will need to work on elements of the Project Plan such as Assessing the Workforce, Letters to Employees, Considering Postponement etc

https://s3.amazonaws.com/easel.ly/all_easels/416259/autoenrolment/image.jpg

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What expenses can the self employed claim?

Business people group.

The UK has seen the fastest growth in self-employment in Western Europe over the past year, according to the Institute for Public Policy Research (IPPR).

There are many types of expense that you can claim and HMRC have just created a new guide…

HMRC expenses

http://www.hmrc.gov.uk/courses/SYOB3/syob_3_exps/html/syob_3_exps_menu.html

Pre Trading expenses

Many business owners incur in costs before they actually start in business. You can go back up to 7 years can claim costs as pre-trading expenses.

Let’s says you want to start a home based business, you need to create an office at home or build an office in the garden. This means that you have building costs as well as equipment costs before you start trading. These costs are submitted to the new business as an expense claim by the owner on the first day the business starts.

Also you might have legal cost for contracts or renting offices or equipment, you could have costs for product development, stock, samples, or even a motor vehicle.

You can check more about pre-trading expenses legislation.gov.uk or at HMRC.

However, what happens when you have paid VAT prior being VAT registered? 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. If you have doubts as to whether you should be VAT registered or not, take a look at VAT Notice 700/1: should I be registered for VAT.

Simplified or Actual Expenses

Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs. You don’t have to use simplified expenses. You can just decide if it suits your business or not.

Simplified expenses can be used by:

  • sole traders
  • business partnerships that have no companies as partners

You can use flat rates for:

  • business costs for vehicles
  • working from home
  • living in your business premises

You must calculate all other expenses by working out the actual costs.

In order to find out which method works best for you, you can use the Government expense checker

Don’t forget Capital Allowances and the Annual Investment Allowance

Buying equipment, even if it’s on finance, is a great way to reduce your tax bill, the 100% AIA can be used on the date you buy the asset.

Currently, the Annual Investment Allowance is £500,000 and this has been reduced to £200,000 in January 2016.

It is not necessary to claim the maximum capital allowances available or even claim them at all, crazy as it might sound there are situations when not claiming capital allowances can reduce your tax bill!

Sole Trader Example

The personal tax allowance is currently £10,600 (2015/16)

Let’s assume profits are £15,000 and Capital Allowances available are £5,000, so that would reduce taxable profits to £10,000 which would waste £600 of the personal tax allowance.

It would therefore be better to only claim £4,400 in capital allowances and claim the remaining £600 in the following year.

https://stevejbicknell.com/wp-content/uploads/2014/05/workers.jpg

Employers are saving £6k by opting for Self Employed Freelancers…

A survey by PeoplePerHour has shown that the self-employed segment of the labour market in both the UK and USA is growing at a rate of 3.5% per year – faster than any other sector. Should this growth continue for the next five years, researchers predict that half of the working population could be self-employed freelancers by 2020.

The survey also suggests that small businesses that hire freelancers instead of full-time employees could save £6,297.17 per annum. The survey shows that the average waste or spare capacity for each employee in a SMEs is 1.9 hours per day.

The research identifies a number of key drivers behind the shift from employment to self-employment, including “the availability of ubiquitous and inexpensive computing power, sophisticated applications and cloud-based services“. [Lawdonut]

http://www.sage.co.uk/~/media/markets/uk/images/business-advice/infographic-starting-your-business.gif

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IR35 new status test – coming soon

surprised businessman holding a laptop

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

But soon we may have an easy way to check, HMRC are planning to develop an online test similar to the Employment Status Indicator Test.

The test will be completely anonymous.

Having clarity should make life easier for everyone!

steve@bicknells.net

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Good news for employers – £3k employers allowance

Fotolia_45741373_XS cash

The NICs Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction.

This measure will increase the Employment Allowance by £1,000 to £3,000 from April 2016. This means eligible business and charities will be able to claim a greater reduction on their employer NICs liability.

This is fantastic news for employers, but there is a potential sting in the tail.

HMRC plan to exclude one person businesses!

But many believe that HMRC’s plan won’t work because all you need to do is employ a family member or friend and then the one person should qualify for the allowance.

John Cullinane, CIOT tax policy director, said: “The government may find its plan to be ineffective in reducing employment allowance claims because it is open to abuse. It will simply have the effect of penalising single director-employee limited companies that are unable to, or do not know that they could, appoint another person as director or employee to claim the allowance.”

http://www.taxation.co.uk/taxation/Articles/2016/01/19/334213/one-person-businesses-may-circumvent-curb-employment-allowance

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Should you lease or buy a van – which is better?

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Commercial Vehicles are tax efficient which ever option you choose and provided your employees agree to minimal private use they won’t have to pay any benefit in kind tax on using the vehicle.

But its important to make sure the vehicle you choose is actually a van and not classed as a car. For example double cab pick ups are extremely popular and it makes a big difference whether a double cab pick up is treated as Car or a Van for tax purposes, in summary:

  1. Benefit in Kind on Cars is linked to CO2 where as on a Van its Flat Rate (and could be zero if your private use is insignificant)
  2. Vans qualify for the Annual Investment Allowance, Cars have restricted Capital Allowances
  3. You can reclaim VAT on Vans but its much harder to reclaim VAT on cars

HMRC have some guidance in EIM23150….

Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight (care is needed when looking at manufacturers’ brochures as they sometimes define payload differently).

Under a separate agreement between Customs and the Society of Motor Manufacturers and Traders (SMMT), a hard top consisting of metal, fibre glass or similar material, with or without windows, is accorded a generic weight of 45kg. Therefore the addition of a hard top to a double cab pick-up with an ex-works payload of 1,010 kg will convert the vehicle into a car (net payload reduced to 965 kg). Under this agreement, the weight of all other optional accessories is disregarded. HMRC has also adopted this treatment.

http://www.hmrc.gov.uk/manuals/eimanual/eim23150.htm

black large pickup

A double cab with a payload in excess of 1000kg can still be classified as a car if the taxman dealing with the case decides it is a car. You may have to justify a genuine business need for the vehicle.

Annual Investment Allowance

Since January 2016 the Annual Investment Allowance has been permanently set at £200,000, which means the first £200,000 you spend on assets, including Commercial Vehicles (vans), will be offset against your tax bill immediately. This applies to both the self employed and companies.

So if the buy your van, even if you get with a loan or on hire purchase, you should be able to make a big tax saving in the first year.

However, just remember that when you sell the vehicle there will be a balancing charge for tax, basically this means that the total tax offset will be the purchase price less residual value.

If you have already used up your AIA you will still be able to claim Capital Allowances.

If you lease the vehicle you can not claim AIA or Capital Allowances as you don’t own the vehicle.

VAT

If you buy the vehicle you will be entitled to full VAT refund, if you lease it you can reclaim the VAT on each Lease Payment (which slows down the recovery of VAT).

If you buy the Van when you later sell it you must charge VAT on the sale price.

Deposits

Cash flow might be a reason to choose a lease as its likely the deposit will be less than if you get a loan or HP.

Flexibility

If you need different vehicles for different staff at different times, leasing might be a good flexible option.

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Now we have Deferred Tax on Investment Properties!

for rent black blue glossy web icon

FRS102 has led to many changes in the way we account for things and investment property is a prime example.

The fair value of investment properties changes over time, generally, it goes up in value.

The reporting of gains and losses under old and new UK GAAP differs fundamentally.

Under FRS 102, annual changes in the fair value of Investment Properties are taken to profit or loss, whereas under SSAP 19, equivalent gains and losses were taken in most cases to the Statement of Recognised Gains and Losses. This may have a significant impact on reported performance. The resultant earnings volatility may need to be explained to lenders and other users of the accounts.

http://www.icaew.com/en/members/practice-resources/icaew-practice-support/practicewire/news/investment-properties-all-change-under-frs-102

FRS 102 removes some of FRS 19’s exemptions from recognising deferred tax. As a result, in contrast to current UK GAAP (that is, FRS 19), companies will often need to recognise significant deferred tax liabilities on revaluation gains.

The tax won’t be payable until the gain is realised.

Many property investors are likely to switch to Micro-entity accounting because its much simpler and doesn’t require property revaluations and deferred tax.

Why property investors like Micro Entity Accounts

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What types of property can a SIPP or SSAS Pension invest in?

Buildings in the isometric

Pensions are highly tax efficient and you can purchase Commercial Property, the main examples of types of property your pension could buy are

  • Industrial units
  • Offices and shops
  • Farmland and forestry
  • Public houses
  • Nursing homes
  • Hotels
  • Marine berth

The things you can’t buy are residential property, holiday property, caravans, beach huts, basically, if you can live in it then it will probably be difficult to put it your pension.

Buying a commercial property can be a great investment opportunity, I have been investing in property since 2002 as part of a small pension syndicate of friends and family we are currently invested in an Office Block and 6 Retail Units, we also bought some properties into separate companies and did originally have HMO’s too.

The yield on commercial property is often around 8% to 10% and you can borrow into your pension to help fund the purchase.

Your business can rent a commercial property from you and many owner managed businesses have transferred company owned premises to a SIPP or SSAS.

There have been some very interesting deals done for example

From a music studio in Costa Rica to a yacht berth in the south of France, Sipp (self-invested personal pension) providers report an ever-growing list of exotic assets being bought with pension money to fund investors’ dream business ventures.

Yacht de luxe.

For aviation-mad Tony Fowler, a property developer from West Sussex, the acquisition of a 50pc stake in the Isle of Wight airport through his Sipp means he can fulfil his passion for flight while at the same time investing for his retirement.

Plane and Airport Flat Design Illustration Icons Objects

“A friend and I have paid half each of the total purchase cost of £635,000,” he said. “I was delighted when I found I could use money in my pension to buy the airport. It had been taken over by the receivers and was going to be closed down, but now it is being renovated and improved. We like to think it will bring something to the local economy as well.”

http://www.telegraph.co.uk/finance/personalfinance/pensions/10451405/How-I-bought-an-airport-with-my-pension.html

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Time to prepare for tax year end April 2016

Fotolia_91134201_XS Advice

Now you have filed your April 2015 Return (50% will have been filed in January 2016) you only have 2 months left to take action to save tax on your April 2016 tax return.

What should you be doing right now to save tax?

Contribute to your Pension

Transitional rules, for 2015/16 only, mean that there’s an annual allowance of £80,000, although only £40,000 of this can be used between 9 July 2015 and 5 April 2016. You may also have unused annual allowances from the three previous tax years.

These Transitional rules are to align PIP’s (Pension Input Periods) with the Tax Year.

Pensions have huge tax saving advantages

How a family pension scheme will save you tax

Optimise your 2015/16 Salary

You can’t carry forward any unused personal allowances so generally the optimum salary will be £10,600

What is the optimum tax efficient salary 2015-16?

Take Dividends now

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year.

Dividend tax rates before April 2016

Tax band Effective dividend tax rate
Basic rate (20%) (and non-taxpayers) 0%
Higher rate (40%) 25%
Additional rate (45%) 30.56%

 

This will change from April 2016, see the table below

Dividend tax rates after April 2016

Tax band Effective dividend tax rate
Tax Free £5,000 0%
Basic Rate Tax Payers (20%) 7.5%
Higher Rate Tax Payers (40%) 32.5%
 Additional Rate Tax Payers (45%)  38.1%

 

Capital Gains Tax Allowance

Each year individuals get a capital gains tax allowance, this year its £11,100. If you have capital gains it could worth phasing them to use up the capital gains tax allowance.

Here are some great blogs on how you could transfer a personally owned property or sell shares in a property company to take gains in stages

http://stevejbicknell.com/2014/08/13/how-do-you-give-away-property-in-stages/

http://stevejbicknell.com/2015/08/24/5-reasons-why-you-need-a-property-investment-company/

Other Ideas

steve@bicknells.net

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Pension Tax Changes expected soon

fictitious newspapers

On the 20th January 2016…

David Gauke, the Financial Secretary to the Treasury, said a review of pension taxation would keep savers in mind.

“We need to ensure it is effective in terms of encouraging saving, and it is going in the right place,” he said.

Basically there are 2 changes under review..

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

So that could be great news for basic rate tax payers!

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