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

 

Pension funds can be very effective in estate planning

As well as the increased flexibility in terms of drawdown arrangements that were introduced in April 2015 there were some important changes to what happens to the undrawn funds on death. These changes mean that your pension fund can be passed to survivors tax efficiently.

Where the pension scheme member dies under age 75 certain lump sum death benefits are now tax-free. In particular a drawdown or flexi-drawdown pension fund lump sum death benefit or an uncrystallised funds lump sum death benefit.

Where the member at the time of their death was age 75 or older the special lump sum death benefit charge on the fund will be 45%. However, if a nominated beneficiary wants to draw down income each year rather than take the lump sum the amounts drawn would be taxed at their marginal income tax rate. It has recently been reported that there are currently £2 billion of pension assets in drawdown where the beneficiary is aged under 55 suggesting that a significant number of individuals have taken advantage of the new rules.

Note that cash and quoted shares, including those held within an ISA, are subject to inheritance tax on death whereas pension fund assets are generally free from inheritance tax. It may therefore be more tax efficient to spend or give away cash and shares rather than draw on the pension fund.

Please contact us if you would like to discuss estate and inheritance tax planning in more detail.

No shortcut in accounting for online bookings!

When I started working with serviced accommodation providers some 20 years ago, guests generally looked at places to stay in the brochure produced by the local tourism body (in our case Cumbria Tourism, Keswick Tourism Association etc).  They selected what suited their needs and budget, picked up the phone and if there was availability, made a booking.

How things have changed now that millions of people in the UK have smart phones, tablets/ipads, laptops and PC’s!  Online booking agents or Online Travel Agents (OTAs) acting as disclosed agents for commission, are now the web “platforms” that millions of people use to book their accommodation.  They provide many hotels and guest houses with a substantial portion of their bookings.

The problem is these agents are not all structured in the same way and many are based outside the UK.  To account for the resultant transactions the hotel/guest house proprietor needs to look at the documentation provided, where the head office is established and whether they are paying gross or net of their fees and commission charges.

I’m not going to produce a list of the multitude of on-line agents I see clients using but outline the basics below:-
identify VAT outputs from VAT inputs
If you adopt the Flat Rate VAT scheme then there is no need to pay the Flat Rate VAT on the value of the reverse-charged service or include it on your VAT return.

Regrettably, this is just another thing for a hotelier to think about when preparing the periodic VAT Return.  However, HMRC have confirmed that a VAT Return is not properly completed if agent’s commissions are not accounted for correctly.  The best approach is to identify the booking agencies you deal with, establish where they are based and set up an accounting system to deal with the VAT in the appropriate manner.

Call our Tourism & Leisure Specialist, Cyndy Potter, on 01228 534371 for more information.

Cyndy Potter

Cyndy Potter,  Tourism & Leisure Manager

 

 

How is Brexit going to affect my business?

How is Brexit Going to Affect My Business

Whether it’s hard or soft, one thing’s for sure; Brexit is going to impact your business.

According to an article in the Telegraph, both UK and EU small businesses are most likely to be hit the hardest by Brexit. And with a recent leaked government memo suggesting that the UK will be worse off, no matter the scenario, it’s important that you take the time to consider the consequences of the referendum on your business.

We appreciate that for many of our clients, this is a time of real uncertainty – and that uncertainty is unlikely to lift anytime soon. That’s why in this blog post, we wanted to offer a brief overview of our understanding of the situation as it stands.

In particular, a number of the businesses we work with import from, and trade with, Europe. The future of this business relationship with the continent is obviously a concern for many, and it’s something we’ve been keeping a close eye on.

The Curious Future of Trading with the EU Post-Brexit

For many businesses, exporting products to other countries is a terrific source of revenue, while importing materials can result in lower manufacturing costs. However, this could all change in the not-too-distant future.

If you currently trade with the EU, you’ll be well aware how intertwined it is with the single market. Should Brexit negotiations result in trade becoming more difficult, it could pose a huge risk to your business.

Where exports are concerned, the Office of National Statistics states that 48% of the UK’s total goes to the EU, while 59% of imports into the UK come from the EU. In 2016, imports to the UK from the EU totalled £318bn, while exports in the opposite direction were worth £235bn.

No matter how you slice it, these are significant numbers set to be exposed to a great deal of volatility and uncertainty in the coming months.

And After Brexit, VAT Could Be Paid Upfront on Imports

Earlier this year it was reported that, under the proposed legislation, over 130,000 UK businesses would have to pay VAT upfront on all goods imported from the EU post-Brexit.

Fast forward to this month, and the VAT problem remains, with many businesses unprepared for the tax implications of Britain leaving the European Union. Being forced to pay VAT upfront could result in additional and complicated paperwork and acute cash flow challenges.

And if you’re reading this thinking ‘my business doesn’t deal in imports, nor is it close to the VAT threshold, so this won’t affect me’ be prepared to think again!

The fact that so many businesses will need to pay upfront and recover money at a later date could have a potentially huge knock-on effect to other companies operating in the same or similar industry or marketplace.

For example, your business may be asked to shoulder some of the burden by paying your UK-based suppliers upfront for materials they’ve imported from the EU, therefore exposing your business to the same cash flow challenges and risks.

Getting Your Business Ready for Brexit

March 29, 2019, will be upon us before we know it. It’s vitally important that you take the necessary steps to prepare your business for Brexit sooner rather than later.

Some early key considerations should include:

  • Supply chain auditing – Even if your business is as ready as it can be for Brexit, you could still encounter disruption if your suppliers are not. It’s therefore worthwhile auditing your supply chain to ensure every link is robust and ready.
  • VAT and cash flow – As mentioned earlier, if you’re trading with the EU, you will need to be prepared for the possibility of paying VAT up front. Implementing a cash flow forecasting system is highly recommended.
  • Intellectual Property (IP) – European patents should still apply in the UK after Brexit, but other areas of IP, such as designs and trademarks, could lapse. Check the Brexit IP page for more information.
  • Employee nationalities – You will need to understand the rights and status of your EU workers to ensure you are employing them legally post-Brexit.
  • Contingency planning – There is simply no guarantee that everything will operate smoothly come March 30, 2019. Border procedures could quite easily grind to a halt, so you will need a contingency plan if you’re importing goods or services.

ICAEW has a terrific checklist to help you plan for Brexit. We recommend you take the time to review their resources in depth.

Need Some Advice? Let’s Talk

With over a century in business – and counting – Saint & Co. has witnessed and overcome a great deal of business challenges brought about by a shifting political landscape.

We can help you prepare for the upcoming changes and challenges posed by Brexit. Remember, it’s never too early to start planning.

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

VAT rules for business owned cars

Most businesses we deal with consider a motor car to be an essential asset of their business.  Without a car they just would not be able to carry on their trade.  For VAT purposes a car is not treated like any other asset.  Special provisions apply to cars which apply to no other items.

VAT law has always treated cars in rather a special way primarily due to a high degree of private use.  Much to everyone’s dismay for most businesses, apart from the likes of a driving school, taxi firm or self drive hire business, VAT is not recoverable as input tax on the purchase of the car.  There are, however, provisions which mean that VAT can be claimed back on the purchase of a car if there is NO intention whatsoever that it should be made available for any form of private use.  In practice this is very difficult to fulfil.  It is not a case of not doing any private mileage in a business car, it is rather whether the car is available for private use.  If there is any chance of claiming input VAT back on a car which is to be used for business use only then steps must be taken to prevent private use, such as the vehicle insurance being for business use only, and/or prohibition on private use being included in contracts of employment.

So if you are unable to claim the input VAT back on the purchase of a car, what about the running costs?  The goods news here is that input tax is recoverable on all the running costs of a car such at repairs, service, new tyres etc without the need to make any restriction for private use.

Running costs do not however include road fuel whether petrol or diesel.  Input tax can be recovered in full on all purchases of road fuel for cars used by a business, even if there is some private mileage, as long as the VAT registered makes a standard adjustment on their VAT Return.  This is called the fuel scale charge and is based on the carbon dioxide emissions of the vehicle in question.   The higher the emissions the higher the scale charge:-

Quarterly Fuel Scale Charges and VAT thereon

The scale charge applies regardless of how little or how much private use the car has.

A business can opt not to adopt the fuel scale charge and in turn not recover input VAT.  However, care needs to be taken before going down this route as the decision would apply to ALL road fuel bought by the business for any vehicle.  It is not possible to elect to claim on specific vehicles.  It’s all or nothing!  So the likes of a haulage contractor who drives a Ford Mustang with carbon dioxide emissions of 299 g/km would be wise to pay the fuel scale charge of £82 a quarter, as if he doesn’t adopt the fuel scale charge he will be unable to claim the input VAT on the road fuel for his fleet of wagons – definitely not a good move!

There is a final option other than adopting the fuel scale charge but I rarely see people using this in practice.  This is to keep detailed mileage logs recording each business and private journey and only claiming input tax back on the business proportion of the road fuel expenditure.

Those are the VAT rules for business owned cars now but expect all this to change as more electric cars take to the roads in the years to come, along with all the changes re BREXIT!!

Cyndy Potter

 

 

Cyndy Potter,

Tourism & Leisure Manager

cyndy@saint.co.uk

 

Revised advisory fuel rates from 1 March 2018

Company Owned Vehicles

HM Revenue and Customs have announced revised tax free advisory fuel rates from  1 March 2018 which may be paid for business journeys in a car owned by the business.   Rates for the previous quarter are shown in brackets.

Engine size Petrol Diesel LPG
1,400 cc or less 11p (11p) 7p (7p)
1,600 cc or less 9p (9p)
1,401 cc to 2,000 cc 14p (14p) 8p (9p)
1,601 cc to 2,000 cc 11p (11p)
Over 2,000 cc 22p (21p) 13p  (13p) 13p (14p)

These rates may be used in the following circumstances:-

  1. Where employers reimburse for business travel in company cars.
  2. Where employers provide fuel for company cars but employees are required to reimburse the cost of fuel for private use.

Input VAT claims on mileage paid for company cars OR employee owned vehicles

HM Revenue & Customs will accept the above figures for claiming input VAT on fuel for company cars, provided a VAT receipt is available to cover the cost of the fuel.  They will also accept use of the above rates by the employer when calculating input VAT on the fuel element for employees using their own vehicles and claiming mileage under the tax free approved mileage rates for business travel of 45p for the first 10,000 miles and 25p thereafter.

If you have not already done so, please update any spreadsheets you may use.

If you have any queries regarding the above or require any further information please do not hesitate to contact us.

What is Making Tax Digital, and how will it affect me?

What is Making Tax Digital, and How Will It Affect Me

A great many aspects of modern business have become streamlined and paperless thanks to cloud technology. And within the next few years, the government plans to add tax to that list with Making Tax Digital (MTD).

In a move that will bring about the end of paper accounting for millions across the UK, HMRC will deliver a digitally advanced, efficient, and modernised tax system to rival the best the world has to offer.

Starting from April 2019, businesses above the VAT threshold will be required to set up a digital tax account and file their returns online every quarter. But even if your business isn’t likely to exceed that threshold by that time, you should still make sure you’re prepared for the inevitable transition to digital tax returns.

In this post, we briefly explain the motivation behind MTD, how it will affect you, and when the change will take place.

Why is HMRC ͚Making Tax Digital͛?

The four core reasons behind Making Tax Digital are as follows:

1. To facilitate an efficient and effective use of information

Instead of consistently providing HMRC with the same information year after year, this approach to taxation will be smoother and smarter. HMRC will gather information from elsewhere (such as employers, banks, or other government departments) and you’ll be able to log into your account and view and update your details.

HMRC will then use this information to tailor its services according to your circumstances.

2. To provide access to real-time tax

With the introduction of MTD, you won’t need to wait until the year-end to discover how much tax you owe. HMRC will seek to collect and process information in as close-to-real-time as possible to give you an accurate and up-to-date view of your liabilities.

3. To provide taxpayers with a central financial account

Currently, you don’t have a central account where you can see a snapshot of your liabilities and entitlements. MTD will change that. By 2020, you’ll be able to log into your account and view a comprehensive picture of your personal tax situation – similar to online banking.

4. To interact digitally with customers

If you’ve ever been left on hold when calling HMRC, you’ll know just how frustrating it can be when trying to have a question answered or a problem solved. MTD will transform how you communicate with HMRC by giving you access to digital information, advice, and support via web chats and secure messaging. You’ll be able to ask and answer questions on your terms, rather than give up a morning or afternoon listening to the jazzy hold music as you’re passed between departments.

How will Making Tax Digital impact me?

Making Tax Digital will impact businesses and individuals alike. And, as outlined in this post by Xero, the good far outweighs the bad where MTD is concerned.

In short, you will be required to send a summary of your income and expenditure once a quarter via your digital tax account.

However, if your business is turning over less than £10,000 annually, you will be exempt from MTD.

And to begin with, only businesses with a turnover above the VAT threshold will be required to use the Making Tax Digital for Business system, starting in April 2019. If this applies to you, and you’re unsure if your current accounting system complies with MTD, we cover that query in this post.

When does Making Tax Digital happen?

Making Tax Digital is already happening, with a number of small pilot tests underway.

The following milestones are fast approaching:

  • Early 2018 – Live pilot of Making Tax Digital for VAT begins.
  • April 2019 – Businesses with a turnover above the VAT threshold will be mandated to keep digital records and submit quarterly returns for VAT purposes via their accounting software.
  • April 2020 – HMRC will look to expand the scope of Making Tax Digital, assuming the system is working as expected.

Don͛t Get Left Behind – Go Digital Now

Saint & Co has been around long enough to have experienced many of the major shifts in UK tax administration, and Making Tax Digital promises to be an exciting and welcome change to our relationship with tax.

We’ve kept our finger firmly on the pulse of this developing situation, and we can help you prepare to make the switch to keeping digital tax records.

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

The Chancellor’s first Spring Statement

There were no new tax measures and no spending changes in the Chancellor’s first Spring Statement. The Office for Budget Responsibility (OBR) trimmed its projections for government borrowing, but Mr Hammond simply banked the savings for his Autumn Budget. Spending will be subject to a detailed review in 2019.

While the Chancellor appeared to say little, his statement was followed by the publication of a range of documents covering areas including:

  • Entrepreneur’s relief A consultation paper was published on how to give entrepreneurs’ relief in circumstances where it would otherwise be lost because of a new share issue.
  • VAT threshold The government issued a call for evidence on restructuring the VAT registration threshold to offer more incentives for small businesses to grow. There is some evidence that businesses deliberately limit growth to avoid crossing the existing £85,000 threshold (which has been frozen for the next two years).
  • Tax and the digital economy There were several papers examining taxation issues surrounding the digital economy, including VAT and income tax leakage through internet trading platforms.
  • Self-funded work-related training A consultation paper was published examining how to extend the existing tax relief framework to self-funded work-related training by employees and the self-employed.
  • English business rates The next revaluation of business property in England will be brought forward one year to 2021, with three-yearly revaluations thereafter.

Many of these documents will eventually result in legislation, but that does not mean no tax changes in the interim. The impact of last November’s Budget (and some earlier measures) will soon be felt with the start of the new tax year.

If there are any issues from our Spring Statement summary that you would like to discuss in more detail, or if there is anything we can help you with, please get in touch with us.

2018/2019 Tax Tables

Our new Tax Tables for the 2018/19 tax year are up-to-date with everything announced in the Spring Statement, giving you all the key numbers in one place.

Key changes for the forthcoming 2018/19 tax year include:

  • Increases to the personal allowance, and basic and higher rate tax thresholds.
  • New income tax bands and rates for Scotland.
  • A cut in the dividend tax allowance from £5,000 to £2,000.
  • Revised company car tax scales, with an increase in the diesel levy.
  • The first increase in the lifetime allowance since 2010.
  • An increase in the maximum tax relievable investment in Enterprise Investment Schemes.

If you have any questions about the contents of our Tax Tables or how any aspects of your tax and financial planning may be affected by the Budget, please call us to discuss them.

“Well, that’s higher than I expected!” – How to Reduce Your Next Personal Tax Bill

Well, that’s higher than I expected!͟- How to Reduce Your Next Personal Tax Bill

January 31 has been and gone, and many business owners are still reeling from the sting of a higher-than-expected personal tax bill.

It’s never fun when that brown envelope from HMRC lands on your doormat, stating in no uncertain terms that you owe £X when you were expecting £Y.

But what can you do about it? There’s little point arguing after the fact, so it’s time to get prepared for next year’s bill. And in this blog post, we take a look at three simple steps to avoid the shock of another eye-wateringly large number leaving your bank account.

How Can I Reduce My Tax Bill?

Step 1. Understand What You Owe

One of the main culprits when it comes to surprise tax bills is something called payments on account.

It will typically catch out individuals in their first year of trading, but it’s a tricky little complication for even the most seasoned of business people.

Here’s how it works: When your tax bill passes the £1,000 threshold, you will be required to pay an advance of next year’s tax bill, half of which is due on January 31, with the second instalment due on July 31.

Each payment is calculated as half of the previous year’s tax bill, based on your combined tax and National Insurance contributions (NIC).

For example, if your total tax bill for 2017-18 was £3,000, each payment on account for 2018-19 would be £1,500. So, instead of paying £3,000 as expected on January 31, you’re actually paying £4,500. And suddenly you’re faced with a cash flow problem and a demand for payment from an organisation who don’t take too kindly to non-payers (we’ll explain what you need to do if you can’t pay later in the post).

If your profit varies from year to year, the payments on account will vary too. You might need to overpay one year, in which case you’ll receive a refund, or you might underpay, in which case you’ll
be charged interest. You do have the option to use the refund to offset against a future tax bill on your tax return, which can give you some breathing room when the next bill arrives.

Why does this payment exist?

From your point of view, asking for 18 months worth of tax in one lump sum might seem like overkill, but if you put yourself in HMRC’s shoes, it does make sense.

If you were working in a typical job where PAYE is deducted monthly, the government will receive your tax and NIC the very next month. However, if you’re submitting your own tax return, your bill is due to be paid the following January. This means it can take months or even years before the government receives tax on the money you’ve earned.

Why does this payment exist? From your point of view, asking for 18 months worth of tax in one lump sum might seem like overkill, but if you put yourself in HMRC’s shoes, it does make sense. If you were working in a typical job where PAYE is deducted monthly, the government will receive your tax and NIC the very next month. However, if you’re submitting your own tax return, your bill is due to be paid the following January. This means it can take months or even years before the government receives tax on the money you’ve earned.

Payments on account was introduced to shorten that time between self-assessment tax payments by almost a year.

And don’t forget NIC

Your Income tax is calculated as 20% of your net profit less your personal allowance, on earnings up to £45,000 (Basic rate), 40% on earnings between £45,001 and £150,000 (Higher rate), and 45% on earnings over £150,000 (Additional rate).

Where many business people leave themselves open to yet another surprise addition to their personal tax bill is in forgetting that they will owe Class 2 and Class 4 NIC, to be calculated and collected at the same time. Make sure you’re factoring those into your calculations.

Step 2. Start Saving Now; Switch to the Cloud

You’ve experienced the shock of a huge tax bill, and it wasn’t nice. And the only way of avoiding yet another nasty surprise next time around is to plan for next year.

Start by setting aside some time each month to review your bookkeeping activities. If up until now you’ve been reactive to the money you’ve earned, it’s time to be proactive. Calculate your profits, forecast your cash flow, and start saving money for tax. There’s little point in sweeping all of your earnings into your personal bank account if you’re only going to leave yourself short come the following January.

And now that you’re well aware of payments on account, you can make sure you’re saving more each month to keep yourself covered.

Make the switch to cloud accounting

If you haven’t already, then now’s the time to embrace the cloud. Using a cloud accounting platform such as Xero, you can further enhance the accuracy of your savings by seeing a real-time view of your financial performance. Quickly calculate your take-home pay less expenses and estimated tax, and make sure you’re putting enough aside to meet your liabilities.

Plus, it’s good practice to build a cash reserve should you run into a particularly challenging cash flow situation.

Step 3. Work with a Tax Expert

Now that you understand what you owe, and you’ve started to build your savings, the next step is to learn how to minimise your tax liabilities throughout the course of the current tax year.

Of course, this can be very challenging, especially as you have a business to run, and you won’t always have time to dig into the allowable expenses related to your industry.

That’s why we recommend you lean on the expertise of a tax advisor. They can help you identify tax saving opportunities of which you were perhaps unaware.

And it should come as little surprise that those business people who typically receive lower tax bills are the ones who remain proactive and organised throughout the year, working closely with their accountants to pinpoint savings and claim for the correct expenses.

Follow their lead and you too will avoid another scary tax bill.

What If I Can’t Pay?

If you can’t pay your tax bill, first thing’s first: Don’t panic.

It’s important that you submit your tax return as normal, otherwise, you will be fined. And the longer you leave it, the larger the fine.

Next, discuss the situation with HMRC. They’re not your enemy, even if they’re the ones after your hard-earned cash. They’ll take you through your options, and you may be given the opportunity to either delay your payment or pay via instalments.

Bookmark this link, just in case.

Avoid the Shock with Saint & Co.

Following steps, one and two will shape your understanding of, and relationship with, tax.

Following step three can bring your bill down. And we can help you take that step.

From offering expert advice to keeping you organised and minimising your liabilities, our friendly team is ready to change your approach to tax. And together, we’ll make this the last year you received a shock tax bill!

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

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