To July’s Business Companion News.
Payments On Account Due
Note that any second self assessment Payments On Account for 2022/23 are due by 31st July.
Paying Self Assessment Tax:
HMRC Bank Details:
Sort Code: 08 32 10
Account number: 12001039
Account Name: HMRC Cumbernauld
Use your 10 digit Self Assessment number (UTR), followed by the letter K for example 1234567890K.
|Optimum Expenses, Salaries and Dividends
|Clients often ask us to tailor our recommendation between salary and dividends for their particular situation. The key is to see that both salary and dividends cost tax. So what are the tax-free things?
So the first priority (in tax terms) is the repayment of expenses – this income is tax free.
The second priority is home office rent – this income is also tax free.
The third priority is a salary.
The fourth priority is dividends.
3rd Priority – Basic Salaries
The optimum directors’ salary in 2023/24 is £12,570 per annum (£1,047 per month) for most directors. This is the most tax efficient amount for the majority of directors to pay themselves. After this Directors should pay themselves further amounts as dividends. You should also make use of allowable expenses and employer pension contributions.
4th Priority – Dividends
The dividend tax-free allowance has reduced from £2,000 to £1,000 from April 2023. Pay this £1,000 as your next priority.
5th Priority – Further Dividends up to £50k total earnings
After the dividend tax-free allowance, the next most tax efficient is for you to be paid up to £37,500 further dividends.
The Optimum Expenses/Salary/Dividend
So therefore we recommend:
– the repayment of whatever expenses and household expenses you can claim;
– the optimum directors’ salary for 2023/24 should be £12,570 pa for each director.
– dividends of £1000
– further dividends.
After this the next priority would have to be salary to your spouse if they are also director.
Why not pay higher salaries?
All taxpayers have a personal allowance in which they can earn income tax-free. As soon as the allowance is used up tax rates are applied. After income exceeds £12,570 per annum, both national insurance taxes and income taxes are applied on the excess.
The NI and income tax rates combined are significantly higher than the dividend tax rate until total earnings hit £51k. Say your company earns corporation tax profits at the new higher 25% rate, even allowing for the higher corporation tax recovery on the salaries, paying dividends is still more tax efficient.
However there are still several arguments for paying a higher salary. These are:
– Salary is needed to justify pension payments.
– Salary can be used to justify an R&D claim – but dividend can’t
– Salary is safer if the company is at risk of liquidation – it is harder for an Insolvency Practitioner to demand a claw back.
|How to Claim the Marriage Allowance
|Template Documents for Running Your Business
|The marriage allowance is £1,260 of the personal allowance which is available for transfer between spouses or civil partners. But this amount can only be transferred where the recipient is taxed at the basic rate (20%) or less (starter, basic or intermediate rates for Scottish-resident taxpayers).
The marriage allowance is given as a tax reducer in the hands of the recipient at 20%, so it worth £252 per year (£1,260 x 20%). This value is fixed until at least 6 April 2028, as the personal allowance has been frozen until that date by the current government.
The “claim” for the marriage allowance must be made by the person who is surrendering part of their personal allowance, which is counter intuitive as you are asking to give away part of your tax-free allowance. The person who receives the additional allowance doesn’t claim it, they just passively receive the extra tax benefit.
The individual who surrenders the marriage allowance must have some or all of their personal allowance unused, or have a zero-tax liability due to the operation of other allowances on top of their personal allowance.
We can claim your marriage allowance for you whhen we submit your personal tax return.
|There are all sorts of documents that we use to help protect your business. Some of these we can get drafted specifically for you. We have a Personnel Advisor who is currently drafting up new HR contracts for all the staff of one of our larger clients.
But there are some documents that you should prepare yourself. This link provides a great source of contracts and documents for new staff, import/export, financial planning and many other topics:
Strangely the main UK government site offers very few templates of this nature. These templates have been written for Northern Irish businesses with a Northern Irish accent. But they should be perfectly usable in the rest of the United Kingdom.
|Update on 100% Electric Cars
|We reported comprehensively on HMRC’s treatment of electric vehicles in November 2019.
This is an update on the current concessions which have tightened considerably since then. The key change is that these concessions are now only available for 100% electric cars.
Capital allowances: sole traders, partnerships and companies
• Electric vehicles are eligible for 100% First year allowances
• Charging points are eligible for 100% allowances.
Benefits In Kind
• P11ds apply to electric cars and vans provided to employees and for tax years 22-23, 23-24 and 24-25. The BiK is 2% of the list price.
• The most tax effective way of paying for charging is that the charging point and the electricity should both be paid directly by the employer.
• The current HMRC-approved mileage payment for a company-provided electric vehicle is 8p per mile.
• Where the employee uses their own car the mileage rate is the same as for a petrol or diesel car i.e. 45p per mile for the first 10,000 miles, then 25p.
• The electric vehicle employee owner-driver can also claim 5p per mile per passenger they take on the same business journey.
Normal rules for VAT recovery on the purchase or lease of a vehicle apply:
• VAT can only be recovered on business cars if they cannot be used by any employee privately.
• 50% of the VAT can be recovered on company cars hired on an operational lease (but then a car that is leased doesn’t qualify for capital allowances).
• VAT can be recovered in full on non-leased commercial vehicles assuming no private use.
• VAT can be recovered on electric vehicle running costs such as repairs and vehicle excise duty where it applies.
HMRC’s policy on the supply of electricity for electric vehicles is:
• Supplies of electricity from public charging points are standard-rated.
• VAT on the business use element of electricity taken from home charging points is only recoverable for sole traders and partners and not for employees/directors. This is however currently being reviewed by HMRC.
• Where workplace charging is provided to employees the business may recover the VAT.
– Output VAT must then be charged on any element of electricity provided for private use as a deemed supply.
– Input VAT may also be recovered on the supply of electricity used to charge electric vehicles where there is business use where the vehicle is charged at a public charging point.
• Where the employer pays the employee for providing their own electricity for business travel in a company-owned electric car, at a rate of, 8, 5p or 4p per mile (as relevant), HMRC have indicated that the employer cannot currently reclaim input tax on this.
|July Questions and Answers
| Q1. I quit my job in July 2022 and became self-employed from September 2022. I started to pay class 2 NIC for my self-employed trade with effect from 1 September. Will the 2022/23 count as a qualifying year towards my state pension? Answer
Q2. I have applied to register my café business for VAT from 1 July, but the VAT number hasn’t arrived. What should I show on invoices from that date? Answer
Q3. My building business is winding down as I prepare to retire. I want to close my company, which has gross payment status for the Construction Industry Scheme (CIS) and carry on any further work as an individual sole trader. Will the CIS gross payment status carry over into my sole trader business? Answer
| 6 – Employers need to submit the report of expenses and benefits (P11D) and class 1A NIC due on those benefits (P11d (b)) online for 2022/23. There is no option to submit this information on paper.
– Employers must supply their relevant employees with copies of the P11D information for 2022/23.
– Employee share scheme annual returns need to be submitted through the ERS to report events in 2022/23.
– Any employee share schemes put in place in 2022/23 must be registered by this date.
– Where employee termination payments and benefits have been provided with a value of £30,000 or more for any one employee, or where non-cash benefits included in the package, a report must be submitted to HMRC.
– Directors and employees who wish to ‘make good’ the cost benefits provided in 2022/23 to avoid being taxed on those items must do so by this date. This applies to the provision of: cars, vans, road-fuel, non-cash vouchers, accommodation, credit token and benefits treated as earnings.
– Where a close company has provided beneficial loans to a director, the company must elect by this date for all loans to be treated as a single loan to calculate benefits in kind.
7 – Where non-cash benefits have been provided in 2022/23 to retired employees under employer-financed retirement benefits scheme a return needs to be made to HMRC.
19 – Non-electronic payment of Class 1A NIC for 2022/23 on benefits returned on a declaration of expenses and benefits (form P11D(b)) must reach HMRC by this date.
21 – Payment of Class 1A NIC made by an approved electronic payment method must reach HMRC by this date.
31 – The second payment on account of self-assessed income tax and Class 4 NIC for 2022/23 is due.
– All tax credit claims for 2022/23 must be confirmed and renewed for 2023/24 if required.
| Please contact us if we can help you with these or any other tax or accounts matters.
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