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Welcome…
To April’s Tax Tips & MYOB News. As we start the new tax year there are a few important reminders.
New Payroll Contacts
See the article below.
Directors’ Salaries: please see our newsletter from last month for recommended salaries and dividends. Make sure that you are ready to update your standing order from April to the correct amount (usually £702pm)
Workplace Pension Contributions: In our February Newsletter we explained that contribution rates are increasing in April. In our simple scheme the total 5% contributions (calculated on ‘banded qualifying earnings’ above £503pm) will be wholly paid by employers. Do make your staff aware that you are giving them this increased benefit!
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| Business Companion Payroll Change & Fee Increase |
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Moving to new payroll
We are providing a new payroll service from April 1st 2018. We are grateful to our past supplier, Tax Assist (York) and in particular to Georgina Thomas. George has had the extra pressure over the last two years of setting up our payrolls for auto enrolment. We are now bringing the service under our direct control with a full time service using more comprehensive software.
Your payroll records are being migrated to the new software now.
Our new payroll contact is:
Callum Moor
Email:
Telephone: 01422 887012
Our Simple Payroll Service will produce payslips showing your own company details and logo.
As part of the changeover we will be asking HMRC to authorise us to access all your PAYE records. Please email us the code that they send you in the post.
Business Companion Fees
We have noticed
that the rate we charge has varied considerably for relatively modest
turnover changes. To address this we have decided to grade our
customers more finely between a larger number of bands. We have carefully reassessed all Business Companion customers against these new thresholds.
Partly as a result of these changes we are reviewing our Business Companion Fees. We have not revised them since 2015. Our service represents good value compared to other accountants, given the level of onsite and offsite support we provide. We are looking forward to supporting you and your businesses in the future. We are including the following new services as part of our fee:
- Five day a week payroll cover.
- Workplace Pension management following our simple scheme (including re enrolment and monthly filing with the Peoples Pension)
- Making Tax for Digital (MTD) compliance for VAT-registered businesses.
- General Data Protection Regulation (GDPR) advice
These responsibilities are significant: to fulfil them properly takes us time. They limit the numbers of new clients that we can accept. Inflation since our last increase has totalled 7% over the three years. The increased responsibilities are taking us considerable time and we have decided to charge another 10% for this. For some of our clients the band changes mean that the fee increase will be much less than the 17%.
Please look at the revised fee table on our website. We are advertising these rates for new clients already but we will hold off the fee increase to existing clients until May. We will be emailing you invoices for April, May and June shortly with an explanation of the increase.
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Buying Goods for Personal Use can save VAT
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| HMRC’s Dynamic Tax Codes Falter |
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You’re buying new IT equipment, mainly for use at home, but it will occasionally be used for work. Can you reclaim the VAT on the cost and is there any advantage in doing so?
Putting it through the business
You’ll often hear the proverbial man down the pub talking about putting expenses through his business as if there’s a magical tax advantage in doing so. There isn’t. Just because an expense is recorded in the business’s accounts doesn’t mean you’ll receive a tax deduction for it. In fact, your bookkeeper and accountant are obliged to adjust the figures for HMRC to exclude costs which are not for the business.
Excluded purchases
When it comes to completing your returns you can’t reclaim any VAT for a purchase which isn’t for your business. For example, if your business paid for a romantic dinner for you and your partner, it can’t reclaim the VAT. However, for a purchase which is both business and personal, say equipment which is mainly for private use but will also be used for the business, the amount of VAT that can be reclaimed depends on which of the two methods you use.
Tip. HMRC accepts that even a small amount of business use (as long as it isn’t for the purpose of making exempt supplies) entitles a business to reclaim VAT.
How much VAT?
If a purchase is of consumable goods or services, say stock or broadband, you can reclaim the VAT corresponding to the proportion of business use. HMRC will accept any fair or reasonable estimate. But if the goods are equipment where there could be varying business and private use, there are two ways to account for the VAT.
Method one – reclaim some VAT
If when you make a purchase you have a reasonable idea of the proportion of business and private use, you can simply reclaim VAT in proportion to the expected business use, and that’s the end of the matter. However, this method has a potential drawback or advantage.
Tip. If your private use turns out to be different from your estimate you can’t amend your claim. This can work in your favour or HMRC’s.
Method two – reclaim all the VAT
Alternatively, as long as you expect there to be some business use you can reclaim all the VAT on the purchase and then pay some only when you use the equipment for private use. HMRC has a formula for working out the VAT you must pay (
Example. In April 2018 Acom purchases a van for £20,000 plus VAT of £4,000. It was intended for business use only and Acom reclaims all the VAT. For the whole of the VAT quarter ended 31 March 2019 one of the firm’s partners uses the van solely for private purposes. Acom must account for VAT on the cost of the van divided by the lesser of the number of months the business expects to own and use the van, and 60. The result is multiplied by the number of months in the VAT return period, then multiplied by the proportion of private use, in this case 100%. The VAT payable is 20% of the result, i.e. £200.
If you don’t expect the purchase to be used in your business, you can’t reclaim any VAT, even if later the position changes. However, if you expect even a small proportion of business use you can reclaim a corresponding amount of VAT, or reclaim all of it at the time of purchase and pay VAT for any actual private use.
Source: Indicator Tips & Advice Business Database
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Dynamic coding is supposed to speed up tax collection for HMRC. However, a major flaw has caused it to backtrack. What’s the full story?
Dynamic coding.
One of the first elements of Making Tax Digital to go live was “PAYE Refresh”. Also known as dynamic coding, it arrived a few months later than scheduled in summer 2017. Among other things, its purpose is to pick up data from employer payroll reports and, where adjustments are needed to employees’ tax codes, automatically issue them. In theory this will make PAYE more accurate – only time will tell.
Faster tax collection.
More important to the government is that dynamic coding is backed up by legislation which allows HMRC to collect in-year tax underpayments caused by incorrect codes over the remaining months of the tax year.
Example. In June 2017 Bev received benefits in kind for the first time and she notifies HMRC. It amends her tax code, but not until September, by which time she has underpaid tax of £500. Her amended code takes account of the benefits in kind going forward, plus an adjustment to collect the £500 over the remainder of the 2017/18 tax year. Before dynamic coding HMRC would have waited until 2018/19 to collect the £500.
Timing trouble. HMRC’s February 2018 Employer Bulletin acknowledges concerns that have been raised by experts that making “dynamic” adjustments to collect tax underpaid earlier in the year can cause problems if they are made late in a tax year. For example, the employer might not be able to operate the new code before the end of the tax year, or the adjustment would be too harsh on the employee.
Solution. HMRC now says that while it will issue codes that needed adjustment after 1 January 2018, these won’t take account of any underpayment of tax built up to that point. Instead it will adjust the code for the 2018/19 tax.
Tip. If you’ve received a code amended downward for 2017/18 in recent weeks, the chances are you will also have received one for 2018/19. Check each carefully to make sure that HMRC hasn’t adjusted both to collect the same tax twice.
HMRC will override its dynamic coding system to prevent it collecting arrears of 2017/18 tax caused by amended tax codes issued after 1 January 2018. It will instead collect the tax by adjusting 2018/19 codes.
Please get in touch if you feel that the tax code you have received for 2018/19 is incorrect. Ideally scan and send the letter to us by .
Source: Indicator Tips & Advice Business Database
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| NMW and NLW increases take effect |
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New rates for the National Minimum Wage (NMW) and National Living Wage (NLW) (aged 25 and over) apply from 1 April 2018, and employers must ensure that they implement them accordingly. The rates are as follows:
– 25 and over – £7.83 per hour;
– 21 – to 24-year-olds – £7.38 an hour;
– 18 – to 20-year-olds – £5.90 an hour;
– under 18s – £4.20 an hour; and
– Apprentice rate – £3.70 an hour.
Read More
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| April questions and answers |
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Q. I have traded through a two-man partnership for many years, but my partner has recently announced that he has decided to leave. I intend to continue trading as a sole trader. We have agreed an outgoing payment, which includes amounts for various items but mainly consists of plant and machinery. What is the position regarding capital allowances?
Answer
Q. I own a property in the UK that is rented out but I live and work in Italy. The taxable profit from the rental property is less than £10,000. Will I have to pay UK tax on this property income?
Answer
Q. I am hoping to start my own business very soon, but I am not sure whether I should incorporate straight away or not. The business will require a substantial capital investment, so it is likely that it will make a loss in the first, and maybe even second, year of trading. Are the loss relief rules better for sole traders or companies in the early years of trading?
Answer
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5 – End of 2017/18 tax year. Last day to use up your annual exemptions for capital gains tax, inheritance tax and ISA’s
6 – Start of the 2018/19 tax year
14 – Return and payment of CT61 tax due for quarter to 31 March 2018
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/4/2018 or quarter 4 of 2017/18 for small employers. Interest will run on any unpaid PAYE/NIC for the tax year 2017/18
30 – Additional daily penalties of £10 per day up to a maximum of £900 for failing to file self-assessment tax return due on 31 January 2018
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Please contact us if we can help you with these or any other tax or accounts matters.
In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.
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If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.
See details of our Business Companion Service.
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Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks or Clearbooks.
‘All clients using these software packages can benefit from our support. Visit our website http://www.simpleaccounting.co.uk for a look at the resource on offer.’
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