Notify HMRC of employee benefit trusts and similar loans by 30 September

HM Revenue and Customs (HMRC) have published revised guidance on settling tax liabilities in relation to the use of disguised remuneration schemes involving Employee Benefit Trusts (EBTs) and similar arrangements.

In order to settle on preferential terms before the outstanding loan charge arises on 5 April 2019, taxpayers must register with HMRC and provide all of the required information by 30 September 2018.

Are staff pension contributions affecting your margins? Here’s what you can do

Are staff pension contributions affecting your margins? Here’s what you can do

Pension contributions increased from a minimum of 2% of qualifying earnings to 5% in April of this year, and they’ll increase again in April 2019 to a minimum of 8%.

So, what exactly does this mean for your business and its margins?

Well, the truth is, you simply don’t have any choice in the matter. You’re legally required to pay these pension contributions. All eligible employees must be enrolled, and you must make the minimum statutory payments on their behalf.

But you don’t have to let this fact eat away at your profit margins. You can do something about it. And it boils down to two options:

1. Raise your prices
2. Look for savings elsewhere

In this brief blog post, we’re going to explain a few ways to improve your profit margin against the backdrop of increasing staff pension contributions.

How to improve profit margins: 4 simple tips

1. Review your customers – all of them

It’s all too easy to fall into a pattern with existing clients. You know what they want, they know what you charge, and things just keep trundling along. But ask yourself: Could you be making more?

Perhaps it’s time to review your customers and the prices you’re charging, and work out if it still makes sense. For instance, have you raised prices to match any supplier price increases over the years? Are you providing more value but charging the same? Are your products or services now of a higher quality? Are your clients even sensitive to the odd price increase? Or will it send them running for the hills? And if it does, were they even the right fit for you to begin with?

Clearly, there’s a lot to consider, but this is an important first step towards increasing your profit margins, closely followed by…

2. Increase your prices

After conducting your customer review, you might find that one or two have been coasting along on a legacy pricing model – one that your business has done well to outgrow. And with ever-increasing and often unavoidable overheads, it’s vitally important that you monitor and review your pricing structure at regular intervals.

Understandably, business owners can be hesitant when it comes to increasing prices. They worry that doing so will result in loyal customers flinching and leaving in pursuit of a better deal. But the truth is, if you’re providing a fantastic service or a top quality product, most customers will accept a small bump in price over time. And chances are, those who don’t weren’t going to be long-term customers anyway.

If you’re still worried about increasing your prices, think about it like this: Operating at a 30% gross margin and putting prices up by 15% means you can afford to lose up to 33% (one-third) of your customers and still maintain the same level of income as before.

3. Prevent theft, fraud, and waste

The choice shouldn’t simply be increase price OR look for savings. Do both. And one of the best ways of protecting your profit margin is to prevent theft, fraud, and waste from occuring in your company.

Whether you have products or cash being stolen by staff or customers, or you have inventory, resource, or time being wasted in your business, it all adds up.

Consider implementing anti-theft systems, fraud protection protocols, and workflow management software to grab back what was once being lost to inefficient or malicious actions.

Even a minimal change in approach could pay dividends further down the line.

4. Negotiate a better deal

Finally, just as you’ve taken the time to review your customers, be sure to do the same with your suppliers.

Are you really getting the best deal possible? Are you being overcharged? Could you switch and save? A quick internal audit of your supply chain could lead to big savings.

And don’t be afraid to expand your focus to every aspect of your business: Broadband, telephone, banking, stationery, the list is endless. It might seem like penny pinching, but every penny counts!

And don’t forget the intangible benefits!

Yes, the pension contributions are unavoidable, but they don’t have to be bad news. It’s a real positive that you’re putting money aside for your employees and their futures, and if you communicate this properly, it could lead to a boost in morale and a redoubling of efforts.

Happy employees are more often than not invested in doing a good job, and increased productivity and enhanced levels of quality will only ever work wonders for your profit margin!
Increase your profit margin with Saint

Need some advice when it comes to reviewing prices, introducing efficient workflows, or decreasing tax liabilities? We can help. Simply fill out our contact form, or call us on 01228 534371 to get started.

New VAT rules for building trade in 2019

building trade

Under new rules due to come in on 1 October 2019 builders, sub- contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.

The measure is designed to combat VAT fraud in the construction sector labour supply chain which HMRC argue presents a significant tax loss. HMRC has now published draft legislation to introduce the Reverse Charge for Construction Services.

Under the proposed new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deducts that VAT – leaving a nil net tax position. This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.

CONSTRUCTION WORK AFFECTED

The reverse charge will apply to a wide range of services in the building trade, including construction, alteration, repairs, demolition, installation of heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, and foundation works. The definitions have been lifted directly from the CIS legislation.

EXCLUDED WORKS

Professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape are not covered by the new rules. The draft legislation sets out other work to which the reverse charge does not apply.

It is hoped that the legislation and guidance will be finalized by October 2018 to allow businesses at least 12 months in which to make the necessary changes to systems. Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.

Vacancy for Accounts Assistants at our Millom and Whitehaven Offices

We are seeking two full time Accounts Assistants, one for our Millom Office and one for our Whitehaven Office.

The ideal candidates will be conscientious, self-motivated and have significant accountancy practice experience. The role will involve all areas of accounts preparation for both incorporated and unincorporated businesses and preparation of VAT returns. The candidates will also be IT literate, having a working knowledge of Microsoft Office and accountancy software.

Please email your C.V. to Ian Scott by 21st July 2018

Common Quickbooks errors and how to fix them

I am often approached to help with or solve errors on Quickbooks.    A few common errors I have come across, with steps to resolve the problem, are outlined below:

Bank account does not balance to statement

Whether the bank transactions are set up to be downloaded via the online bank feed or uploaded manually from a .CSV file there is still a need to manually reconcile the transactions to those on the bank statements.

Click on the company cog in the top right-hand corner, under Tools select Reconcile. Select the account you wish to reconcile then enter the date and the closing bank balance as per the bank statement you wish to reconcile.

This will bring up all the transactions that have been entered on to Quickbooks. If these have come in direct from the bank feed (the authorised online link with your banking provider) they will feature a little green box in the corner.  Highlight the transactions as you see them appear on the bank statement until the difference box on the right-hand side shows £0 with a big green tick next to it.

This reconciliation will highlight any duplicates or missing transactions and give you chance to edit these from here to allow the bank to balance to the statement at your chosen date.

A supplier or customer is still showing a balance that I know has been paid/received:

If you know this has been paid or received and has gone through the bank, the chances are it has been entered as a new payment/receipt rather than matched to the supplier/customer invoice.

To rectify this click on the banking tab, make sure the bank you want to look in is highlighted in blue along the top and click the ‘In Quickbooks’ tab. Scroll until you find the transaction you wish to edit and click ‘Undo’ on the right-hand side. This will then put the transaction in to the ‘For Review’ tab where you can click in and click ‘Find match’ to match it against the necessary invoice. This will then show the invoice as paid and clear the outstanding amount from the ledger.

Please note: this could result in an adjustment to your VAT if the transaction resulted in the VAT being paid/reclaimed twice. Should this relate to a period where the VAT return has already been finalised this adjustment will appear in the ‘Exceptions report’.

Amending/deleting customers, supplier or accounts

Any customer, supplier, account name or information can be easily amended.

Customers

Sales tab  arrowCustomers arrow click into the relevant customer arrow click the ‘Edit’ box in the top right-hand corner.

Suppliers

Expenses tab arrow Suppliers arrow click into the relevant supplier arrow click the ‘Edit’ box in the top right-hand corner.

Account names

Accounting tab arrow Chart of accounts arrow select the required account name you wish to edit arrow on the right there is a drop-down arrow which will bring up a box where you can choose ‘Edit’.

Marking VAT return as filed

It is important that when the VAT return is finalised that the period is closed down. This will stop any transactions being paid or reclaimed more than once.

When the VAT return is ready to submit click into the taxes tab. The large figures at the top of the screen will show the VAT calculation of the transactions which have yet to be submitted.

The box underneath will show ‘Open Returns’ – showing the return which is due for submission.

Please make sure you check the dates of these returns tie in with the VAT quarters which have been agreed with HMRC.

On the right there is an option to select ‘submit return’, click this. This will take you through to the VAT return which can then be submitted directly to HMRC using your Government Gateway credentials or to be submitted manually on to HMRC’s website. Should you submit directly to HMRC the return will mark itself as ‘Filed’, should you wish to submit manually you will need to adjust the drop down option in the green box on the bottom right hand side to ‘Mark as filed’.

This will then close off all the VAT that has been marked on a return and will not attempt to feature on any future returns. Any adjustment to figures which do feature on a filed return will be brought in as an automatic adjustment in the ‘Exception report’ on the next return.

If you need any help with Quickbooks, please contact me at the Penrith Office or email me nina.jacobs@saint.co.uk

Nina Jacobs Accounts Department Penrith Office
Nina Jacobs
Accounts Department
Penrith Office

 

Simplification of inheritance tax

The Office of Tax Simplification (OTS) have been tasked with carrying out a review of Inheritance Tax (IHT) with a view to simplifying how the tax operates.   IHT is perceived to be complicated and currently yields a relatively small amount of tax compared to income tax and national insurance.

There are a number of reliefs and exemptions currently available which may be withdrawn or simplified as a result of the review. Major changes to the tax are probably a year or so away and we will keep you updated as the review progresses. It may be necessary to review your Will and plans for passing on your business and estate when we see any new rules.

EMI share option scheme receives state aid approval

EMI share options scheme

 

On 16 May 2018 the European Commission gave formal state aid approval to  Enterprise Management Incentives (EMI). Qualifying companies can now resume awarding EMI options to attract and retain employees.

There are considerable tax advantages for employees and employers of introducing a tax advantaged share incentive scheme.

Please contact us if you would like to consider introducing a share incentive scheme for your employees.

Off-payroll rules (IR35) to be extended to private sector workers?

As mentioned in the Autumn Budget, the Government has opened a consultation into a possible extension of the rules that currently apply to “off-payroll” workers in the public sector to the private sector. This consultation is being undertaken at the same time as the consultation into employment status.

The IR35 rules introduced in 2000 are intended to ensure that people working through a Personal Service Company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance Contributions (NICs) as if they were employed. However, it is estimated by HM Revenue and Customs (HMRC) that only 10% of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.

Is it working in the public sector? 

In April 2017, the Government reformed the rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance. The April 2017 change requires the public sector body or agency, not the worker, to decide whether or not the IR35 rules apply and then deduct income tax and national insurance from payments to the worker.

There are however concerns that many of such workers are being treated as quasi-employees incorrectly. The consultation document states that there is evidence that some public authorities did have difficulties implementing the reform, both understanding the new rules and resolving disputes with contractors. HMRC have introduced the Check Employment Status

for Tax service (CEST) software on their website to assist employers in reviewing workers’ contracts.

Options being considered for the private sector

As well as the possible extension of the rules that currently apply to the public sector, the consultation is requesting views on other options.

One alternative would be to require engagers to carry out due diligence into labour providers in their supply chain to ensure that they are compliant with employment and tax laws. This is already a requirement for gangmasters and other labour providers.

One suggestion apparently rejected was to create a new corporate structure referred to as a “freelance limited company” that would offer a simplified tax treatment, limited liability, a restriction on the frequency of dividend payments, and a requirement for the worker to be paid a minimum salary.

Another proposal rejected was to introduce a flat-rate withholding tax, similar to the Construction Industry Scheme for off-payroll engagements.

The consultation period ends in August and it is anticipated that the Chancellor will make an announcement about future proposals in the Autumn Budget.

Making Tax Digital delayed further, apart from VAT reporting

making tax digital

HM Revenue and Customs (HMRC) have confirmed that no further making tax digital (MTD) for business changes will be brought in before 2020 at the earliest.

The Treasury set out its revised priorities for current digital transformation projects, to make room for the additional demands on its resources of work to upgrade customs systems in preparation for Brexit.

The HMRC statement notes that the convergence of business taxes from the current range of IT systems onto a single system will now happen at a slower pace. This will slow the creation of the single account for all business customers.

For individuals, the introduction of further digital services will be delayed, with progress on simple assessments and real time tax code changes put on hold for the time being.

Note that the introduction of VAT reporting under MTD is still scheduled to commence in April 2019 for those VAT registered businesses with turnover over the £85,000 VAT registration threshold.

What expenditure is deductible against taxable income on a furnished holiday let?

Although income from a FHL is declared as property income on an individual’s tax return, it is treated as trading income.  Consequently trading expenses in running the FHL can be set off against such income.  The FHL can be in the UK or the EEC so for example a holiday villa in Spain can count as a FHL.

WHAT TYPES OF TRADING EXPENSES CAN BE CLAIMED?

  • Marketing/Advertising – this includes setting up a website, advertising in brochures etc.
  • Council Tax and Water RatesTIPS
  • Heat & Light – gas, electricity and coal etc
  • Cleaning and laundry – including washing up liquid, bleach, toilet rolls plus laundry services etc.
  • Telephone – you will need a phone to make calls with regard to letting the FHL.
  • Repairs and Renewals: including expenses incurred in the general maintenance and upkeep of the property such as painting and decorating.
  • Insurance – such as buildings, contents and public liability
  • Interest – interest on a loan to purchase or improve the FHL – note it is only the interest that can be offset and not the capital repayments. From 5 April, 2016 HMRC restricted the deductibility of finance costs against a residential letting property but this restriction does not apply to an FHL
  • Letting Agents Fees – you may decide to use a holiday letting agent to deal with the FHL.
  • Accounting Fees – you the cost of preparing your tax return to declare your income and expenditure from your FHL
  • Travelling expenses – you can claim mileage at the fixed mileage rate to and from the property provided it relates purely to running the FHL and is not mixed with private travel. You need to keep a mileage log.

If the property is used privately for part of the year then the expenses will need to be apportioned between private and business use on a reasonable basis.

 

WHAT CAN BE CLAIMED ON CAPITAL EXPENDITURE?

Tax relief can be claimed on capital expenditure via what are known as capital allowances.

Capital allowances can be claimed on moveable items such as furniture, white goods, carpets and electrical goods such as TVs etc.

Currently the first £200K of capital expenditure can qualify for 100% tax relief under the Annual Investment Allowance rules.

Something that is often missed however is that capital allowances can also be claimed on plant and machinery fixed into the holiday letting property itself.  In tax terms there are two types.  Firstly there are integral plant/fixtures which include sanitary ware, integrated kitchen equipment etc.  Secondly there are integral features which are things like the electrical system, central heating, hot and cold water systems, air conditioning etc.

Plant/fixtures get a tax writing down allowance of 18% whilst features get a lower rate of writing down allowance of 8%.  However, as long as the capital spend on these two categories along with that on movable items is not more than £200,000, Annual Investment Allowance can be claimed giving 100% tax relief on the whole spend.

Integral items can amount to 10% to 20% of the whole cost of the FHL property when purchased.  However for a high specification property overseas in the EEC e.g. Spain which has air conditioning and swimming pools, the integral items can account for up to 30% of the purchase price.

Again if there is private use of the FHL the claim to capital allowances needs to be restricted to business use only.

Cyndy Potter Tourism & Leisure Manager
Cyndy Potter
Tourism & Leisure Manager

 

 

 

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