Trade away your Overdrawn Directors Loan 2

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

http://www.bartercard.co.uk/about

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/

steve@bicknells.net

 

Self Assessment Tips for Subcontractors 3

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.

steve@bicknells.net

 

Ways to Save National Insurance Reply

I have always thought that National Insurance (NI) is a strange tax compared to PAYE because:

  1. For normal employees it isn’t cumulative its based on their earnings in a month or week (although Driectors can opt for Cumulative)
  2. It only applies between the ages of 16 and retirement
  3. 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

http://www.hmrc.gov.uk/rates/nic.htm

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

http://www.direct.gov.uk/en/moneytaxandbenefits/taxes/beginnersguidetotax/nationalinsurance/introductiontonationalinsurance/dg_190048

Apart from having multiple jobs or changing jobs here are a few ways that you can save NI:

  1. Salary Sacrifice https://stevejbicknell.com/2011/10/22/salary-sacrifice-could-save-45-8-in-tax-and-ni-how-does-it-work/
  2. Special NI Holiday Schemes https://stevejbicknell.com/2011/10/15/holiday-pay-without-any-national-insurance-to-pay/
  3. Regional Employer NI Holiday – save up to £50,000 https://stevejbicknell.com/2011/10/08/reduce-your-ni-bill-by-50000/
  4. 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/

steve@bicknells.net

Why invest in a Pension? Because of Tax Relief! 6

 

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
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

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?

steve@bicknells.net

What are the tax benefits of Low Emmission and Electric Cars? Reply

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

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

But both you and your company could be better off with a Low Emmission or Electric Car.

Capital allowances

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.

Vehicle taxes

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.

http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1080532548&type=RESOURCES

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.

steve@bicknells.net

Are you claiming your Flat Rate Expense Allowance tax refund? Reply

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.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/IncomeTax/Taxallowancesandreliefs/DG_078378

There is a full list of the Flat Rates at

http://www.hmrc.gov.uk/manuals/eimanual/EIM32712.htm

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.

steve@bicknells.net

How to claim VAT back using Fuel Advisory Rates Reply

Mileage for the current tax year can be reclaimed at a maximum  of 45p per mile for the first 10000 miles then 25p after that

http://www.hmrc.gov.uk/rates/travel.htm

Most people are already using these rates, but a large number of businesses don’t reclaim the VAT on the Fuel element – see VAT Notice 700/64

8.7 My employees are paid a mileage allowance, how do I work out my input tax?

You work out your input tax by multiplying the fuel element of the mileage allowance by the VAT fraction. You can do this for all fuel bought

The allowance paid to employees must be based upon mileage actually done.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000090&propertyType=document#P159_17774

 

Company cars: advisory fuel rates
The rates below apply from 1 December 2011.

Engine size

Petrol

LPG

1400cc or smaller 15p 10p
1401cc to 2000cc 18p 12p
Bigger than 2000cc 26p 18p

Engine size

Diesel

1600cc or smaller 12p
1601cc to 2000cc 15p
Bigger than 2000cc 18p

So this is how to work out the claim:

1000 business miles = 1000 x 45p = £450

On which VAT (assuming a 2000cc (bigger) Diesel) 1000 miles x 18p divided by 1.2 x 20% VAT = £30 VAT to reclaim

For large businesses there could be a lot of VAT to reclaim

steve@bicknells.net

 

Tax Advantages of a Classic Car 7

A classic car is one where:

  • the age of the car at the end of the year of assessment is 15 years or more and
  • the market value of the car for the year is £15,000

I found a 1968 Jaguar MkII for sale for £15,000 on

http://www.classiccarsforsale.co.uk/classic-car-page/165880/1968-jaguar-mkii/

The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.

The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw

http://en.wikipedia.org/wiki/Jaguar_Mark_2

Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280

As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.

steve@bicknells.net

Directors Loan v’s Private Use of Company Assets 4

Many Directors borrow money from their Limited Company, but there are 2 key costs:

If, your company, purchased assets and you used those assets privately, the treatment is much more favourable:

  • The cost of the asset is allowed against Corporation Tax and you can claim Capital Allowances and the Annual Investment Allowance

From April 2012 the rates of capital allowances have been reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for  ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000).

  • The Benefit In Kind is generally 20% of the market value http://www.hmrc.gov.uk/paye/exb/a-z/a/assets-available.htm#2
  • So, based on buying an asset for £10,000 – there will be saving in Corporation Tax of £2,000 and the Benefit In Kind Tax of £1,076, thats a net saving in year 1 of £924 compared to a cost in year 1 of £2715.20 on a loan (total difference £3,639.20), although the benefit in kind will be £860.80 more expensive in future years.

The Assets could be purchased from the Director but they must be transfered at Market Value.

According to Indicator ‘Tax Breaks for Directors’ assets owned by companies include antiques, paintings, furniture, business suits (but not vehicles) and the 20% benefit in kind amounts can be deducted from the value of the asset should it subsequently sold to an employee or director.

Generally you can only reclaim VAT on the purchase of Assets for Business Use http://www.hmrc.gov.uk/vat/managing/reclaiming/private-use.htm

steve@bicknells.net

Associates don’t have to be taxing Reply

The small companies rate of Corporation Tax is 20% compared to main rate of 24% (2012/13). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.

For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:

  • one of the companies has control of the other, or
  • both of the companies are under the control of the same person or persons

http://www.hmrc.gov.uk/manuals/ctmanual/CTM03710.htm

But what some business forget is that if you have a subsidiary that has become dormant it stops being associated

an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.

http://www.hmrc.gov.uk/manuals/ctmanual/ctm03580.htm

steve@bicknells.net