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April 2014

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To April’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

Please contact us for advice in your own specific circumstances. We’re here to help!
April 2014
· Salary and Dividend Strategy 2014/15
· Tax Codes Crisis
· Avoiding VAT Penalties
· Search for Landlords
· April Question and Answer Section
· April Key Tax Dates
Salary and Dividend Strategy 2014/15 top
As a director and shareholder of your own company you can decide how much salary to pay yourself each month in order to use your tax-free personal allowance in the most tax efficient way. Any further funds you need can be extracted as a dividend if the company is making a profit.

If you are a director of your company and you don’t have a contract that sets out terms of employment with the company, you don’t have to pay yourself the national minimum wage. So how much should you pay yourself?

Best Strategy
For 2014/15 you have a tax free personal allowance of £833 per month (£10,000 per year). You could take a salary at that level and pay no income tax, assuming you have no other taxable benefits from the company such as a car.

However, you will still pay national insurance (NICs) on that salary as the NICs threshold is £170 less ie only £663 per month. From a monthly gross salary of £833 the company must therefore deduct NI of £20.40pm.

Normally the employer would also have to set-aside Employer’s NI of £23.46 on top. From this year the company will have an ‘Employment Allowance’ of £2,000 for the year to set against the  employer’s NI due on all its employees. It won’t have to pay over Employer’s NI until that £2,000 is used up.

You may wonder why we want to incur any National Insurance this year.  The reason is that the extra pay allows you to recover more Corporation Tax than you lose in Employee NI.  It’s better to pay 12% Employees NI (£245.28) on the additional £2,044 salary because it allows your company to save Corporation Tax of £408.80 (£2,044 x 20%).

Another Idea

If you take a salary of just above the NI lower earnings threshold of £481 per month, you will get an NI credit towards your state pension, but you don’t pay any tax or NI. However, at that annual salary level (£5,772) you will be “wasting” £4,228 of your tax free personal allowance, unless you have other income to cover it. This would include wages from other employers or interest you could get for loans you make to finance your company.

If you go for the first strategy you get a salary of £10,000pa or £833 pm.  The NI deduction is £20.40 pm. Net pay is therefore £812.60pm.  The actual paid Dividend can only go up to £28,678 with no tax deducted. 

If you go for the second strategy you get a salary of £7956 or £663 pm.  There are no tax or NI payment issues.  The actual paid Dividend can be up to £30518 with no tax deducted. 

With either of these strategies there will then be no income tax to declare in the Self Assessment tax return.


Talk to us about the best salary level for you, which takes into account all your other sources of income. Our usual strategy will be to pay directors (£833 pm). With larger payrolls it will be better for owner directors to pay themselves less (£663 pm) so that the other staff can use up the NI Employment Allowance. 
Tax Codes Crisis
Avoiding VAT Penalties
Does it matter if you get your tax code wrong?

Tax codes can cause a serious problem for small employers.  Say the HMRC get the tax code for an employee wrong and the employee ends up paying tax. You then reassess your employee’s tax code….. It is quite possible that the employee is due a substantial rebate.  So you pay the rebate.

But now your firm has to recover the rebate from the HMRC payments that you make. Let us imagine that through careful design your business has a very minor PAYE bill. You cannot recover the rebate from your normal PAYE payment. So you request back the overpayment made in the previous month.

Well firstly the HMRC will require you to wait until the end of the payroll year before they will consider a rebate. Then they will ask for all sorts of correspondence to justify a reclaim.  Not only will you have to justify that there has been an overpayment of PAYE, they will also require you to explain how their coding led to the overpayment.

They will then make security checks to decide if they can repay what you overpaid them. Then they will prevaricate over the payment arrangements. The HMRC then might decide that the amount that they owe you should be offset against other taxes (eg corporation tax), which you will become due to pay at a later stage.

We recommend that you question all the tax codes you get for you or your employees.  Be particularly suspicious of any K or BR codes.  Luckily the HMRC are now realising that their processes for handling taxcodes are clunky, particularly in the light of RTI and the forthcoming Universal Benefit.  The HMRC are now even prepared to accept emails from you as you to try to get them to reassess their calculation. See the relevant HMRC links:
Tax Code Wrong
If you pay your VAT late to HMRC, even one day late, your card will be marked for a VAT penalty called a “default surcharge”. The first late payment doesn’t attract a monetary penalty, but the second occasion on which you are late within 12 months triggers a penalty of 2% of the VAT due. The third, fourth, and fifth occasions of lateness increase the percentage of the penalty to 5%, 10% then 15% of the VAT due (ouch!).

There are a number of VAT Schemes that can help you to avoid these penalties. You can get more details from our website: Tricks of the Trade

You may not notice the first two penalties set at 2% and 5% of the VAT due as HMRC will only demand payment from a small business if the total penalty amounts to over £400. However, you will receive a warning letter, and you should appeal against the penalty if you had a reasonable excuse for paying late. 
Search for Landlords top
April Question and Answer Section top
Inheritance tax (IHT) is payable at 40% on the net value of the assets you own when you die, plus (to a certain extent) on the value of the gifts you made in the seven years before you die. The first £325,000 of assets is currently exempt from IHT in all cases.

There are also exemptions from IHT for business assets, such as shares held in unquoted companies. However, you cannot escape IHT by holding all your investments and spare cash inside your personal company. The business of the company must be more than passive holding of investments, and the Taxman normally regards letting property as an investment, but this is a grey area. Read More
Q. I’ve recently made a gain of £62,000 by selling the shares I acquired though EMI options issued by my employer. Does that big gain push me into a higher tax bracket for income tax? What tax should I expect to pay on the gain? Answer

. I am a member of the APM (Association for Project Management) and my company pays my membership fees to the APM on my behalf. Does this payment have to be reported on the form P11D? If so, do I pay tax on the membership fee? Answer

Q. Can my company may regular donations to charity and receive tax relief for those gifts? Answer
April Key Tax Dates top
05 – End of 2013/14 tax year. Last day to use up your annual exemptions for capital gains tax, inheritance tax and ISA’s

14 – Return and payment of CT61 tax due for quarter to 31 March 2014

19 – PAYE/NIC, student loan and CIS deductions due for month to 5/4/2014 or quarter 4 of 2013/14 for small employers. Interest will run on any unpaid PAYE/NIC for the tax year 2013/14

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 2013
Budget Briefing
New Clients Welcome top
We recently emailed you a report about the 2014 Budget.  We have a longer brief on the announcements with links to the various underlying HMRC documents, a full tax calendar and a comprehensive rates table. Please just email us and we’ll send you this detailed briefing.

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.
About Us top
Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, or Clearbooks. We offer a range of accountancy services despite being specialists.

‘All clients using these software packages can benefit from our support. Visit our website for a look at the resource on offer.’

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