It’s a fundamental concept of accounting that the accounts must give a ‘True and Fair’ view of the state of affairs of the company at its year end.
In order to achieve this a company may need to revalue its fixed assets, it could be Plant or Property, larger companies will refer to International Accounting Standards and Financial Reporting Standards but most SME’s use FRSSE http://www.frc.org.uk/documents/pagemanager/asb/FRSSE/FRSSE%20Web%20optimized%20FINAL.pdf
Accounting Explained gives a good summary of the entries related to revaluations http://accountingexplained.com/financial/non-current-assets/revaluation-of-fixed-assets
Here are some things you need to know:
- Revaluing Assets does not create a tax liability
- Revaluing Assets does not create a profit (it creates a revaluation reserve)
- Depreciation Rates may need to be reviewed (as they could be too high if you need to revalue regularly)
- Revaluation will increased the Net Worth of your business
- The Directors can revalue the assets but the value needs to be carefully worked out as an arms length market value
The Term “IR35” became established following a Budget press release issued by the Inland Revenue on 23rd September 1999. That press release was called “IR35”. At its simplest, IR35 is the way in which the taxman closed a loophole that was allowing many contractors and freelance professionals to avoid paying large amounts of Tax and National Insurance.
All Freelancers, Consultants and Consultancy Companies need to carefully consider the new HMRC tests released on the 9th May 2012.
Here are the 12 tests, scores shown in()
- Business premises (10)
- PII (2)
- Efficiency (10)
- Assistance (35)
- Advertising (2)
- Previous PAYE (minus 15)
- Business plan (1)
- Repair at own expense (4)
- Client risk (10)
- Billing (2)
- Right of substitution (2)
- Actual substitution (20)
A score less than 10 is high risk and a score more than 20 is low risk. Fail the test and it could cost you a great deal in tax.
When you first form a limited company, the formation agent will arrange the issue of the Subscriber Shares.
Following that you can allocate new shares using Form 88(2)
Before the Companies Act 2006 companies had authorised share capital so before issuing shares:
- Check the Memorandum and Articles
- Check any Shareholder agreements
As your company grows, the shareholders may need to transfer shares to new shareholders. To do this you need to:
- Inform Companies House on the next Annual Return (you can only tell companies house who the shareholders are on an annual return so it could be a while before companies house get to know the the shareholders have changed)
- Your Bank and Professional Advisers will need information on changes to Shareholders
Your shareholders need to be aware that if they give away shares or make a gain from selling shares they may be liable for Capital Gains Tax, however, they may be entitled to tax relief like the Entrepreneurs Tax Relief and that each year there is an exempt amount of capital gains for individuals.
At a time when HMRC are writing to employees who have underpaid tax because they were on the wrong tax code for 2011/12, it might be worth giving some thought to unclaimed tax reliefs
Here’s the top ten list of our biggest tax wastes:
|Area of Tax Wastage
||Amount of Wastage
|Income-related Tax Credits
|Tax relief on pension contributions
|Tax relief on charity donations
|Savings on Inheritance Tax
|Making use of ISAs
|Avoiding penalties for late filing of tax return
|Savings on Capital Gains Tax
|Making use of Employee Share Schemes
|Income tax and Personal Allowances
|| £83 million
£12.6 billion is an incredible amount of money and I am sure many people aren’t even aware that they could be claiming tax relief or refunds, so why not check what you could claim and makesure your tax is right.
For those who haven’t heard of Bartercard.
Bartercard is the World’s largest business to business Trade Exchange servicing over 75,000 trading members across 6 countries with the World’s largest computerised Barter Network
Basically members exchange goods and services instead of cash and a Trade Pound has the same value as a Pound Sterling.
Bartercard is reported in your accounts in the same way as a Bank Account.
My Bartercard contacts tell me that currently one of the most popular ways to use Bartercard is to repay Directors Loans, the Director sells or auctions personal items, selling via Bartercard is easy and members are always keen to buy, they then use the Trade Pounds to repay the Directors Loan.
I know you might say why don’t you just sell for cash, which you could do, but because some products such as electrical items are in short supply in Bartercard, on the auction site (much like EBay) they will almost certainly be sold for a premium price.
Once you have paid off your directors loan you may be eligible for a Corporation Tax refund. https://stevejbicknell.com/2012/01/02/pay-off-your-directors-loan-and-reclaim-corporation-tax/
The construction industry has a large number of self employed subcontractors covering most trades, they often work for a variety of Contractors on multiple sites, which generally means that each year they need help with their self assessment returns.
Here are some suggestions to help:
1. If you are paid net of deduction makesure you have a complete set of Payment Deduction Statements http://www.hmrc.gov.uk/forms/cis-payment-deduction-statement.pdf these statements show how much tax has been deducted and you will be able to use these statements to reclaim that tax on your self assessment return, often the CIS deductions will mean that too much tax has been paid
2. Travel – Self employed workers claim all of their travel and motoring costs and exclude a % for private use
3. Clothing & PPE – gather together all the receipts you have for specialist clothing and PPE
4. Vehicles, Tools, Plant and Equipment – these items of expenditure may be eligible for Capital Allowances and the Annual Investment Allowance (£25,000 for 2012/13) if you have any private use then this will need to be assessed and excluded
5. Other Expenses – You will need details of Insurance, Accountancy, Materials, Bank Charges, Phones, Stationery, and anything else you spent money on
It might seem boring but collecting the information noted above could save you thousands.
I have always thought that National Insurance (NI) is a strange tax compared to PAYE because:
- For normal employees it isn’t cumulative its based on their earnings in a month or week (although Driectors can opt for Cumulative)
- It only applies between the ages of 16 and retirement
- Its applied at different rates to the Self Employed and there are 4 classes of NI
But the thing that seems totally bizarre to me is that for each job you have you get new NI limits, so if you had a variety of part time jobs you might not pay any National Insurance because your earnings were below the threshold in them all.
This also applys if you are Director, you get a new cumulative limit with each employer.
The current main Class 1 rates are 12% for employees and 13.8% for employers
If you’re employed you pay Class 1 National Insurance contributions. The rates are:
- if you earn more than £146 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £146 and £817
- if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817
Apart from having multiple jobs or changing jobs here are a few ways that you can save NI:
- Salary Sacrifice https://stevejbicknell.com/2011/10/22/salary-sacrifice-could-save-45-8-in-tax-and-ni-how-does-it-work/
- Special NI Holiday Schemes https://stevejbicknell.com/2011/10/15/holiday-pay-without-any-national-insurance-to-pay/
- Regional Employer NI Holiday – save up to £50,000 https://stevejbicknell.com/2011/10/08/reduce-your-ni-bill-by-50000/
- Benefits in Kind – for example Gym membership or Assets placed at the employees disposal – Tax and Class 1A NI is payable but the employee doesn’t pay NI – basically any of th brown boxes on the P11D https://stevejbicknell.com/2011/11/07/tax-free-fitness/https://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/
I have been looking at the Tax Relief impact on Pension Investments
Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)
|40% Tax Rate
||20% Tax Rate
Even when you consider:
- Your money is locked up till you are 55
- You pay tax when you take money out of the pension
- You can get 25% out of the pension tax free
The difference in growth is massive
If you do salary sacrifice you can increase the tax effect by saving national insurance too.
So why aren’t more people investing in pensions?
If you have a company car the chances are Benefit in Kind tax will be a concern for you, HMRC have a calculator to work this out
But both you and your company could be better off with a Low Emmission or Electric Car.
If you buy a new car for your business that has CO2 emissions of 110 grams or less per kilometre (g/km) driven, or is electric, you can qualify for a 100 per cent first-year capital allowance. This allows you to offset the whole cost of the investment against taxable profits in the year you make the purchase until 31 March 2013.
New cars have fuel economy labels which show how fuel efficient they are. The label shows how much CO2 the car emits and also how much vehicle tax you will have to pay each year. Lower CO2 emissions mean lower vehicle tax and lower running costs.
Benefit in Kind
Currently zero emmission electric cars have zero benefit in kind but this is set to change in 2015 when the rate will be 13%.
A 5% Benefit in Kind band is now in place for cars that emit below 75g/km CO2, but this will also change in 2015.
Back in December I did a Blog about how to make your claim https://stevejbicknell.com/2011/12/20/how-to-claim-tax-relief-for-employment-expenses/
But many employees don’t seem to realise that they could be entitled to Flat Rate Expenses
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
Flat rate deductions are amounts that HM Revenue & Customs agreed nationally – or sometimes locally if conditions are very different – with trade unions or other bodies.
The deductions cover what’s typically spent each year by employees in different trades. For example, someone working in the clothing industry can get a deduction of £60 each year. A cabinet maker can get a deduction for £140 while the deduction for a stone mason is £120.
You don’t have to be a member of a trade union to get the deduction. You’ll also benefit from less paperwork – you won’t have to keep a record of all the individual amounts you spend.
There is a full list of the Flat Rates at
For example, I am the FD of SCA Group, we employ Scaffolders and the rate for Scaffolders is £140 per year, at 20% tax that means £28 as a tax refund.