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Welcome…
To the latest edition of Tax Tips & MYOB News, our monthly newsletter designed to bring you tax tips and news to keep you one step ahead.
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!
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Annual Investment Allowance |
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You get tax relief on business equipment which you intend to keep, such as vehicles, tools and computers.
Using the annual investment allowance (AIA)
The AIA was reduced from £50,000 to £25,000 in 2012 (from April 2012). But it was then increased to £250,000 on a two-year temporary basis from January 2013 to January 2015. This higher limit should mean that 100% of what you spend on equipment can be offset against your taxable profits.
The rise in AIA only applies from 1 January 2013, for the period before this in the 2012-13 tax year the limit remains £25,000. For businesses that have an accounting year which straddles the two periods, the maximum AIA is calculated in two parts: entitlement based on £25,000 cap for months to 1 January 2013 and entitlement based on £250,000 cap, for months from 1 January 2013.
If your accounting period ran from April 2012 to March 2013, this will result in a maximum AIA entitlement of 9/12ths x £25,000 = £18,750 and 3/12ths x £250,000 = £62,500, giving a total of £81,250. This year (ie from April 2013 to March 2014) your business’ AIA would be £250,000. Assuming that the government reverts to the old rate again, then next year (ie from April 2014 to March 2013) your business’ AIA will be £168,750.
Capital Allowances Planning
You can elect to transfer personally-owned business equipment to your company to reduce your tax bill. Any credit to a directors loan account for value transferred is based on market value. This can be very beneficial to you in being able to draw money tax free from the company.
The best time to buy assets needs to be calculated. You do not want the AIA to be exceeded in one accounting year, and not used in the next accounting year.
You get the full 100% tax relief in the accounting year in which you purchase the item, even if that’s on the last day of your accounting period. However the new asset must also be brought into use in the business. By buying earlier you could get the full 100% relief one year earlier. If you’re going to spend the money anyway bring the expenditure forward to accelerate the refund against your Corporation tax bill.
Other Capital Allowances
For most small businesses the AIA may be enough to mean they do not need to use the other capital allowances at all. However for equipment valued over £250,000, 18% can be claimed and the remaining balance is then written down by 18% each year.
For expensive items of plant and equipment, or integral assets, that are likely to last less than 8 years, you can elect to treat them as short life assets. This means that rather than being mixed in with all your other items of plant in a general pool, they are separated out so the tax written down value can be monitored separately. If you sell the short-life asset within 8 years, you can claim the balancing allowance as soon as you sell it
Cars don’t count as short life assets. You can only get 100% capital allowance if they have emissions not exceeding 95 gms/km. The rate drops to 18% if the emissions do not exceed 130 gms/km. Otherwise the rate is a mere 8%. The low capital allowance recovery, the heavy personal tax charges, and zero input VAT, mean that company cars are rarely economic for the small business. For this reason we tend to advise that cars are held personally and any employee mileage claimed at 45p per mile.
See the table on our website for a full list of the rates is at:
You can read more about tax planning issues that we perform for Business Companion Clients under our list of special tax reports.
Note: you will need to log on to our website to view these reports – log in details are initially set as your email address with a password set as ‘accountant’.
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The Cash Basis for Small Businesses |
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VAT on Storage Change |
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The cash basis was mentioned in the Budget announcements, but now we have more details.
In an attempt to simplify accounting and tax reporting for the smallest businesses, from 6 April 2013 small businesses can choose to calculate profits/losses on the basis of the cash received and expenses paid out. This is known as the cash basis, and it ignores debts owed by the business and amounts owing to the business, until those amounts are paid. This works well with the simple accounting bookkeeping.
The cash basis will only be available to businesses which operate as sole-traders or partnerships, and whose turnover is under the VAT registration threshold (£79k from April 2013). Some other businesses will be barred from using the cash basis and these include:
• All companies and LLPs;
• Farmers using the herd basis;
• Any business using profit averaging over several tax years;
• Businesses in a mineral extraction trade; and
• Lloyd’s underwriters.
Once a business is using the cash basis it can carry on doing so until its annual turnover is twice the VAT registration threshold (£158,000 from April 2013).
Although apparently simple, the cash basis will have some disadvantages:
• The deduction for loan interest paid will be limited to £500 per year; and
• Losses can only be carried forward to set against future profits, whereas under the accruals basis losses can be carried back in the first four years of the trade and set off against the trader’s other income.
In addition any unincorporated business, whether or not they are using the cash basis, will be able to use flat rate expenses to replace the calculation of actual costs incurred in these categories of expenses from 6 April 2013:
• Motoring costs (mileage at 45p per mile);
• Use of home for business purposes (based on number of hours used per month); and
• Private use of part of commercial premises, such as a public house (based on number of occupants who are business owners or their immediate family)
As these flat rates are completely optional, and will vary in effect in each business, we need to discuss whether these flat rates will be suitable for your business. Ring us on 01422 847500.
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The law on whether VAT must be charged on storage facilities changed from 1 October 2012. Before that date if you let out space for storage to individuals or businesses, that service could be exempt from VAT, if you had not elected for the whole building to be subject to VAT (AKA: ‘opted to tax’). Since October 2012, if you are VAT registered, you generally need to charge VAT at 20% on the supply of storage areas.
The Taxman has recently confirmed in a new VAT information sheet (10/13) that any let space which is used for storage carries 20% VAT, not just the lock and leave facilities marketed as ‘self-storage’. This could affect businesses who let properties or out unused parts of their buildings to others who use that space to store goods or materials. For example a farmer might let out surplus farm buildings on a temporary basis.Read More
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Pension Lifetime Allowance |
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September Question and Answer Section |
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The Government want us to save enough so we can each draw an adequate pension in retirement, but if you save too much you will be stung with a 55% tax charge when you draw your pension. The boundary between ‘enough’ and ‘too much’ savings is set in law by the lifetime allowance, which is a value of your total pension savings at retirement. This allowance will be reduced from £1.5 million to £1.25 million on 6 April 2014.
To give you an overview on these seemingly high numbers: an annual pension of £75,000 for a man aged 65 at retirement, today requires a pension fund of roughly £1.5 million. A pension fund of £1.25 million would deliver an annual pension of about £62,500 to the same person. If you contribute to a defined contribution pension scheme (the most common type), the value of your pension fund will be shown on your annual pension scheme statement.Read More
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Q. Please help, I’m so worried. I’ve received several threatening letters from the Taxman demanding money, but I’m sure I’m up to date with my tax payments. I’m terrified the bailiffs will turn up on my doorstep and demand payment. What should I do?Answer
Q. I need to get a high-end computer for my business which will cost about £2,200, but I use the VAT flat rate scheme for small businesses which doesn’t allow VAT reclaims. I’ve heard that I can claim back VAT charged on expensive items under the flat rate scheme, is that true?
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Q. My company pays me the regular mileage rate of 45p per mile for business journeys I make in my own car. However, to reach certain customers I need to drive on mainland Europe which requires extra car insurance which is quite expensive. Can my company reimburse me for the cost of that extra insurance without any extra tax? Answer
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September Key Tax Dates |
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19/22 – PAYE/NIC, and CIS deductions due for month to 5/9/2013
30 – Closing date to claim Small Business Rate Relief for 2012/13 in England
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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. We offer a range of accountancy services despite being specialists.
‘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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