Are you ready for the new General Data Protection Regulations (GDPR)?

General Data Protection RegulationEuropean data protection laws are changing and come into force 25 May 2018. These new laws will affect all businesses in the UK and the current Data Protection Act (DPA) will be updated to reflect the GDPR obligations.

The GDPR is a framework with greater scope, much tougher punishments and judicial remedy for those who fail to comply with new rules around the storage and handling of personal data, be it in physical or electronic format.

Why are these new laws being introduced?

Since the DPA was introduced in 1998 technology and the internet have developed at such a rapid rate that these rules are now deemed to be ineffective. Nowadays, the ease and sophistication of data collection means that thousands of SMEs not only collect personal details, but store, move and access them online. Personal data is used in everything from sales to customer relationship management to marketing. Cybercriminals are now much more common. In 2016, companies in the UK lost more than £1billion to cybercrime. Major data breaches have given criminals access to names, birthdates and addresses and even social security and pension information.

A recent report from the Federation of Small Businesses (FSB) claims that SMEs are now more likely to be targeted by cybercriminals than their large corporate counterparts and cybercriminals consider SMEs softer targets!

The GDPR is considered a necessity for the protection of data in a modern internet based society.

It is also a chance to take a fresh look at your data security as data breaches may impact on your business reputation.

What does the GDPR mean for SMEs?

Businesses must keep a detailed record of how and when an individual gives consent to store and use their personal data. This means a positive agreement and cannot be inferred from a pre-ticked box. Customers or individuals have the right to withdraw consent. Details must be permanently erased.

This means businesses should review their existing data and delete any that they do not have a valid reason to hold it. The GDPR sets out the legal bases available for processing personal data such as needing it to perform a business contract. Businesses should review what data they hold, have they got consent and do they need to keep it?

Data should be kept secure and this will require a review of current practices to prevent data breaches.

Personal data is a key tool for SMEs looking to target and retain customers: GDPR means it must be handled with the utmost care.

You should start planning for the GDPR now and consider an information audit and, for many businesses, a change in culture.

How can we help?

We have produced a checklist of actions you should undertake before 25 May 2018 to ensure you have a policy for compliance to ensure you have the correct permissions and data is stored as securely as possible.  For a copy of this checklist please click here.

Contact us if you require further help with your planning.

Tax efficient extraction of profit from companies for 2018/19

The new tax year means that many directors of family companies will be considering the most tax efficient method of paying themselves.

For many years accountants and tax advisors have suggested that director/shareholders should extract profit by paying themselves a low salary with the remainder of their income being extracted in the form of dividends.

Although dividends are not deductible in arriving at the company’s taxable profits, they do not normally attract National Insurance Contributions (NICs). The starting point of NICs will rise to £162 a week from 6 April 2018. This is now significantly lower than the £11,850 personal income tax allowance. A salary just below £162 a week, £8,424 a year would mean no NIC would be due but would be sufficient to count as a qualifying year for State Pension purposes (if above £6,032 lower earnings limit).

Remember that employers other than those where the director is the only employee are entitled to a £3,000 employment allowance that can be set against employer’s NICs. If this has not been utilised against NICs on staff wages then consider increasing the directors’ salaries up to £11,850, as the additional salary would save corporation tax at 19% on the £3,426 extra salary which equals £651, whereas the employees NIC would be £411.

As far as the level of dividends is concerned, the rate of tax changes from 7.5% to 32.5% at £46,350 so ideally the dividends should not exceed £34,500 if a salary of £11,850 is paid. The first £2,000 would be taxed at 0% with £32,500 being taxed at 7.5%. Don’t forget that this tax will then be due on 31 January 2020.

Contact us to discuss other ways in which you can extract profits from your family company tax efficiently.

Property and trading allowances and how to claim them

Two new £1,000 allowances have been introduced for the 2017/18 tax year, these are designed to take out anyone earning £1,000 of property income or self-employed income from the need to complete a tax return. For those earning over £1,000 of property or self-employed/trading income you have a choice as to whether you deduct the £1,000 allowance or deduct the costs incurred in relation to your income. Therefore it is not possible to claim expenses, capital allowances or relief under the Rent a Room Scheme if the allowance is claimed. Note that where a house is owned by multiple persons i.e. spouses or siblings each person gets a £1,000 allowance to put against their share of the property income.

Example: A husband and wife own a flat which they rent out for £400 per month. Their share of the property income is £2,400 each. If the expenses relating to the property are less than £2,000 a year (i.e. a 50% share would be £1,000) then the husband and wife would be better claiming the property allowance rather than claiming for the associated expenses. They would therefore only have to pay tax on £1,400 of the property income.

Where we complete your return for you we will choose the most beneficial option for you. If you complete your own tax return using the HMRC website then in the property pages you need to fill in the box which reads “Property income allowance” under the “total rents and other income from property” box.

An example of where the trading allowance could be claimed is say a tradesman who is employed but also does small jobs for his friends outside of his work, which required little materials cost. In total for the year he received £1,500 from these jobs, he would have to pay tax on only £500 of this income as the trading allowance of £1,000 would be claimed. Note that if multiple trades exist it is a total of £1,000 that can be claimed (you do not get £1,000 to set off against each trade).

Please also note that neither allowance can be used to create a loss, i.e. if you have £700 of income you cannot claim an allowance of £1,000 as this would create a loss of £300, therefore you would only be able to claim £700 of the allowance if you have included the income on your tax return.

Where we complete your return for you we will choose the most beneficial option for you. If claiming yourself through HMRC’s self assessment programme, in the self employed pages, you will need an entry in the “Trading Income Allowance” box (shown under the Turnover earned by your business box).

Clare Garrison Audit Manager Carlisle Office
Clare Garrison
Audit Manager
Carlisle Office

 

Scottish income tax rates rise from 6 April 2018

Scottish Income Tax Rates rise from 6 April 2018

The Scotland Act 2016 provides the Scottish Parliament with the power to set all income tax rates and bands that will apply to Scottish taxpayers’ non-savings, non-dividend (NSND) income for tax year 2018/19.

From 6 April 2018 there will be significant discrepancies between the Scottish rates of income tax and the rates paid by taxpayers in the rest of England, Wales and Northern Ireland. Will this result in some taxpayers moving south or supplying their services via limited companies to avoid this increase?

From 2018/19 the Scottish higher income tax rate will be 41% on income between £43,430 and £150,000 where the top rate is 46%. Note that under the Scottish system there is a 19% starting band on the first £2,000 of taxable income and an intermediate rate of 21% for income between £24,000 and £43,430. The 20% rate applies to income between £13,850 and £24,000 (taxable income £2,001 to £12,150).

If you employ Scottish taxpayers they have a special S PAYE code so that payroll software collects the tax correctly.

Should I buy machinery and equipment before the accounting year ends?

As another financial year draws to a close, you might be wondering if now’s the time to make a last-minute capital purchase.

No matter how much money your business is turning over, purchasing new equipment is a big call and one that shouldn’t be solely dictated by the time of the year. Depending on the industry you’re in, machinery can cost tens – or even hundreds – of thousands of pounds, and along with operational and maintenance costs, a single purchase could significantly alter your bank account and balance sheet.

That being said, if you know you need new machinery, there is an argument for making the purchase before the accounting year ends.

Why Timing Your Purchase Matter

With a plan in place to purchase new equipment, it makes sense to incur the expense before the accounting year ends. That way you’ll receive the tax relief one year earlier than if you were to wait until the new accounting year begins.

An expense incurred entirely for business purposes can be deducted from your income, lowering your taxable profit, and in turn lowering the amount of tax you will be required to pay.

Which items are eligible?

Capital purchases are assets that offer a benefit to your business lasting more than a year. In addition to new machinery, you can also include computers, printers, smartphones, and tablets.

What’s more, other necessary business-related purchases such as print cartridges, stationery, web design, logo design, or office furniture should be ordered prior to the end of the accounting year to ensure you benefit from the earlier tax relief.

However, it’s vital that these purchases are made as part of a wider business plan, and not as a tax saving gambit. Otherwise, you run the risk of depleting funds and causing cash flow problems in exchange for superfluous items.

What Does HMRC Say?

HMRC offers a definition of ‘plant and machinery’ for items on which you can claim capital allowances. This covers a wide range of items, and the costs associated.

Using the Annual Investment Allowance (AIA), you can deduct the full value of a qualifying item from your profits before tax. You can claim AIA on most plant and machinery up to the AIA amount.

What doesn’t count as plant and machinery?

As per the HMRC website, you cannot claim capital allowances on:

  • Things you lease – you must own them
  • Buildings, including doors, gates, shutters, mains water and gas systems
  • Land and structures, eg bridges, roads, docks
  • Items used only for business entertainment, eg a yacht or karaoke machine

And you can’t claim AIA on:

  • Cars
  • Items you owned for another reason before you started using them in your business
  • Items given to you or your business

Always Seek Advice

These allowances can change from financial year to financial year, so it’s vitally important that you monitor the situation closely, or seek expert advice before making a significant business purchase.

We recommend sitting down with your accountant and planning the purchase of your next piece of machinery to ensure you see the full tax benefit.

Need Some Advice? Let’s Talk

Saint & Co has long worked with businesses operating in industries reliant upon heavy machinery, so we know a thing or two about planning and making major purchases.

If you’re not quite sure if and when to pull the trigger on a new piece of equipment, we can guide you through the important considerations, and explain the various tax implications.

Simply fill out our contact form, or call us on 01228 534371 to get started.

Is your milk price increasing your tax payable?

With the average farm gate pence per litre/kg increasing significantly over the last year, in some cases by more than 10p per litre/kg to a current average of around 27 to 28 p per litre, the effects on profitability and hence possible tax payable, be it personal tax or corporation tax, are significant. Optimising production to align as best as possible to your buyers profiles can further enhance the pence per litre achieved. On 1 million litres of production, a 1p per litre movement equates to £10,000 movement on annual milk income – if costs are kept constant, this goes straight to the “bottom line”.

Many dairy farmers had a poor 2016/17 trading year, when looking at either accounts or taxable profits compared to the previous years. Farmers averaging, be it either over 2 or 5 years has been used in many cases, and so a tax reclaim has resulted. As farmers, you will no doubt have appreciated a reasonable tax refund or less personal tax payable in July 2017 and January 2018. With costs being cut as much as possible in 2016/17, and continuing into 2017/18, profitability is likely to have improved significantly in 2017/18.

So, what of the July 2018 and January 2019 personal tax payable? Personal tax instalments are calculated as half the tax due from the previous accounts year, and in the case of the January payment, the balance of tax due for the accounts year that falls within the year to 5 April the previous year. As the personal tax for 2016/17 is likely to be significantly less than due for 2017/18, the January 2019 tax payable may be a shock to some, although further averaging could affect this too.

Many accountants suggest buying equipment before the end of the accounts year – why is this? The answer is because generally 100% of the cost of the equipment (subject to any trade in) can be offset against the accounts taxable profits up to a £200,000 annual net spend – if you spend more than this in a year, you get less allowances in the year on the portion over £200,000, however, there are allowances to carry forward to subsequent years whereby reducing tax in the future, albeit to a lesser extent.

If you did not purchase equipment before your accounts year end, all is not lost. There is the possibility to reduce the “payments on account” for personal tax if you feel that your taxable profits for 2018/19 will fall. Doing this should not be considered lightly. If the actual taxable profits are more than anticipated, there could be interest payable to HMRC on the tax “paid late”.

If you would like to discuss any of the above, or have concerns about a possibly large tax bill in January 2019 please contact your usual contact or any of our farming team throughout Cumbria & SW Scotland. For specific dairy related queries, or if you are looking at maximising the value of the milk you produce, contact Will Robinson in our Carlisle office on 01228 534371, 07475 470132 or email wr@saint.co.uk

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Will Robinson, Farm Advisor Carlisle Office

How will the reduction in the dividend allowance affect me?

From 6 April 2018 the dividend allowance was reduced to £2,000 from £5,000. The result this will have on your tax bill depends on where the £5,000 allowance falls in your personal tax computation.

If the allowance previously fell within your basic rate band then you will have an additional £3,000 (£5,000 – £2,000) charged to tax at 7.5% giving an additional liability of £225. A higher rate tax payer will see an increase of £975 and it will cost an additional rate tax payer £1,143.

The above only considers where the full allowance falls wholly within one band. If the dividend allowance spans across 2 bands the additional tax will be different from the figures above. Also the increase in personal allowance and tax bands have not been considered.

If you would like more detailed guidance on how exactly the change is going to impact you please contact us on 01228 534 371.

Alex Dent, Chartered Accountant Carlisle Office
Alex Dent,
Chartered Accountant
Carlisle Office

Increase in auto enrolment pension contributions

On the 6 April 2018 auto-enrolment contributions increased to 2% of earnings for employers and 3% for employees giving a total minimum contribution of 5%. If an employer already pays 5% or more then it may be that the employee will not need to make any contributions, however this will depend on the scheme. It is also possible for both the employer and employee to contribute more than the minimum required by law.

Employers should ensure there software is up to date with the current legislation and calculates the correct pension contributions based on the above changes. If you use the qualifying earnings basis the band is increasing for 2018/19 to £6,032 – £46,350 (annually).

There will be further increases from 6 April 2019 onwards where the total minimum contributions will be 8% and the employer must pay at least 3%.

Alex Dent, Chartered Accountant Carlisle Office
Alex Dent,
Chartered Accountant
Carlisle Office

Minimum wage has increased from 1 April 2018

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From the 1st April 2018 the hourly rate for minimum wage has increased to the following rates for the relevant ages:

National Living Wage (25+) £7.83
21-24 Years Old £7.38
18-20 Years Old £5.90
16-17 Years Old £4.20
Apprentice £3.70

The apprentice rate applies to apprentices aged under 19, or over 19 and in the first year of their apprenticeship. If apprentices are aged over 19 and not in their first year then they will be entitled to the relevant minimum wage for their age.

Alex Dent, Chartered Accountant Carlisle Office
Alex Dent,
Chartered Accountant
Carlisle Office

How long do I have to keep my accounting records for?

I am often asked how long accounting records should be kept for.   Below are the statutory time limits set by HM Revenue and Customs for accounting, PAYE and tax return records, with lists of the documents that should be kept.

For accounting records:

VAT registered businesses must keep VAT records for at least 6 years.

Records can be kept on paper, electronically or as part of a software programme.

Records include:

  • invoices
  • self-billing invoices
  • bank statements
  • cash books
  • cheque stubs
  • paying-in slips
  • till rolls etc

For PAYE records:

Records must be kept for 3 years after the end of the tax year.

Records include:

  • what you pay to employees and deductions made
  • payments to HMRC
  • employee leave and sickness absences
  • tax code notices
  • benefits etc

For Tax Return information:

Records must be kept for at least 22 months AFTER the end of the tax year that the tax return is for (assuming the return was filed before the 31 January deadline).

For example, if your 2016/17 tax return was filed before 31 January 2018, then you need to keep your records until at least 31 January 2019.

If your tax return was filed late you need to keep your records for 15 months after the filing date.

Records include:

  • P45
  • P60
  • P11D
  • record of expenses paid
  • state benefits received
  • bank statements
  • statements of interest and tax deduction certificates
  • dividend vouchers
  • details of rental income and expenses etc.

For further information or clarification, please contact us.

Michelle Ruddick

Michelle Ruddick

Senior Manager,  Carlisle Office

 

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