Quids and Quills

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Dear Taxpayer…

dont-panicDon’t be alarmed or startled if you receive a message like this in your inbox this/last month! It’s from HMRC, and if you’re paying tax under Self Assessment, almost certainly about the fact that another tax year has passed and so you’ll need to file another, annual tax return.

Dear Tapayer

This is an example of HMRC’s intention of getting all taxpayers online. They’re reducing the number of letters they send out, and are replacing them with online messages. Because of the potential unreliability and lack of security with email correspondence, they will contact taxpayers in future through an online account only.

An online account is easy to set up, I’ll cover that soon in another post.

And if you do already have one, and get an alert like the above, check what it actually says as soon as you can.

“Be Legal, Be Smart, Be Brave!”

 

 

 

 

 

VAT – the Flat Rate Scheme is changing

vat logoVAT is changing, if you’re on the Flat Rate Scheme.

Briefly, this is an existing, simplified scheme for smaller VAT-registered businesses (up to £150,000 turnover) who don’t have many transactions – or not many types of transactions – to make it easier for them to maintain VAT-compliant records.

Instead of totting up each quarter what you’ve sold vs what you’ve bought, and calculating the VAT on the balance – bearing in mind you may have some transactions at differing rates of VAT – you can just take a flat percentage of the sales and pay that over.

This flat rate depends on what kind of business you are, and is lower than the standard rate of 20%. In other words, HMRC will receive (say) a flat rate 14% of your gross sales, instead of you calculating VAT on net sales at 20% then deducting VAT on net purchases at ranges of VAT between 0% and 20%.

pink_asterisk_logo  Especially useful if you don’t use a computerised accounting system, or an accountant to do this for you each quarter!

NOTE: in this context, gross=including VAT, net=excluding VAT.

However, HMRC are now biting down on some businesses where they consider too little VAT is being paid overall – what they call “limited cost” businesses. This affects many consultants, whose reclaimed expenses are small, but their sales value is high.

pink_asterisk_logo  HMRC realises that (say) 14% on gross sales might not come anywhere near 20% on net sales, and particularly if there wouldn’t have been many purchases to offset, under the standard VAT scheme. So they intend to restrict the rate for this kind of business.

From their announcement to businesses who may be affected:

hmrc

What’s changing?

From 1 April 2017 we’re introducing an additional flat rate of 16.5%. This rate will apply to businesses in any sector, but only if they have limited costs. The existing flat rates will continue to be available for those flat rate businesses that don’t qualify as a limited cost business.

What do I do next?

There’s a simple calculator available to help businesses work out whether they’re a limited cost business – go to GOV.‌UK and search for ‘Check your VAT Flat Rate’.

If you’re a limited cost business you’ll need to use the new rate from 1 April 2017.

Using the new rate may mean that you pay more VAT than you do now. You may wish to reconsider whether you still want to use the Flat Rate Scheme. If you’re trading below the VAT registration threshold, you may decide to deregister.

Where to find more information

VAT Notice 733 provides detailed guidance for Flat Rate Scheme users on GOV.‌UK.

https://www.gov.uk/vat-flat-rate-scheme/overview

https://www.gov.uk/government/publications/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note/tackling-aggressive-abuse-of-the-vat-flat-rate-scheme-technical-note

Making Tax Digital – what’s that all about?

tax-rebate-faqsMaking Tax Digital

There has been much talk in the press recently of upcoming changes to the way businesses and individuals are going to need to report details of their tax affairs to HMRC, this is called ‘making tax digital’.

Below is a brief guide of what we currently know about HMRC’s plans to implement the making tax digital’ regime.

This is very much at an early stage and the proposals and/or timetables are likely to change so this article represents a brief summary of the key known details at the date of publication, being 8th February 2017.

What is – making tax digital?

Making tax digital is a process whereby HMRC are going to link their internal systems to allow all taxpayers to access their own digital tax account at HMRC online.

This new account will have details of all taxes owed and owing back to the tax payer.

This should allow easier transfer of overpayments from one form of tax to another – for example, an overpayment of PAYE could be transferred against a corporation tax liability.

HMRC are saying that this will mean the end of the tax return as we know it.

Quarterly reporting

One of the most sensitive changes proposed is that under making tax digital there will be new quarterly filing / reporting deadlines for businesses and landlords.

This is likely to mean that if you are a business or have property rental income that you will need to use online accounting / book-keeping software that is compliant with making tax digital to enable the quarterly reporting to HMRC to take place.

If you currently use spreadsheets to keep on top of your income and expenses then HMRC has said that although you can carry on using these they are likely to need to be combined with software to be able to report the quarterly figures.

Currently HMRC have proposed a turnover threshold of £10,000 – if you are under that you would be exempt from the making tax digital quarterly reporting.

This is one of the key areas still up for debate as it is felt by many people that this threshold should be higher and perhaps the VAT registration threshold should instead be used (£83,000 for 16/17).

Proposed timetable

Below is the current proposed timetable:

April 2017 – HMRC will be entering a trial phase to test how making tax digital will work in practice, working with a small number of test cases.

April 2018 – The self-employed and landlords will commence their making tax digital reporting duties.

April 2019 – VAT reporting gets combined with making tax digital into a new single quarterly report.

April 2020 – Limited companies start their making tax digital reporting duties.

dont-panicWhat next?

There are still many unknowns and there are a significant number of people unhappy with the proposals, so there are likely to be changes ahead.

If you already use online accounting software, then for the time being we’d advise just hold tight and await further details over the coming months.

If you currently don’t use online accounting software then it might be worth doing some initial research as to what options are available.

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From: J F Financial, Online Accountants:  jf-financial.co.uk.

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star-paleBemused by all the rules? Nervous of accounts and tax? Need another pair of hands? 

Contact Quids & Quills and ask if I can help.

Good news on the VATMOSS issue

VATistock

Remember the problems when VATMOSS was first introduced for digital goods – e.g. ebooks – and VAT had to be charged according to the customer’s country?

Many small independent e-bookstores closed, as it was too much administration cost and work, compared to the direct sales they made.

But now there’s Good News!

From the EU VAT Action Campaign Team

HOT OFF THE PRESS:
Just announced by Pierre Moscovici of the European Commission: proposed EU VAT threshold of €10k cross-border sales and the €100k simplifications we have all been campaigning for since December 2014.

Summary:

  • The first €10k of cross-border Digital EU sales (i.e. not in your home country) each year will revert to your domestic VAT rules – so you won’t need to apply EUVAT or register for VATMOSS, if your EU digital exports fall below this level.
  • From €10,001 to €100k of cross-border EU Digital sales you will be allowed the following simplifications:
    • 1 piece of data to prove the customer location (e.g. payment processor data or self-declared country), instead of the current (technically-challenging) two
    • Your home country invoicing requirements will apply – you will no longer have to comply with 28 different sets of invoicing rules
  • These proposals will be presented to the ECOFIN Council of Finance Ministers very soon, who will then have it debated by the technical level working party meetings
  • I have just spoken with the EU Commission and they expect agreement in 2017, with a view to implementing these proposals from 1st January 2018

This will help many thousands of micro businesses to continue trading, without having to move to 3rd party platforms (with up to 30% commission charges) or geo-blocking.

 

Read more HERE.

Can I claim glasses through my Limited Company?

specs

 

Question:

“I run my own Limited company and spend most of my time using a computer. My eyesight has worsened and I will need to get a sight check and new glasses. Can I put these through my company?”

Answer:

There are very specific rules surrounding glasses and whether they are allowable for corporation tax and personal tax for directors or employees of a company.

Firstly, as you plan to, you need to go for an eye test. Regular eye tests can be paid for by the company for its directors and employees under health and safety legislation. This is applicable when there is a need to use display screen equipment for spells of one hour or more at any one time and this is a daily occurrence. The results of any eye test will need to show that any lenses prescribed by the optician are for display screen work only and not a general prescription.

If the above is satisfied the company can therefore purchase the corrective eyewear on your behalf and claim these as an expense for corporation tax purposes. Over and above this, in order to not trigger a benefit in kind charge (with personal tax charges against you and national insurance consequences for the company) the glasses must only be used for this purpose. As such, the glasses must be left next to the computer area overnight and not either taken home or taken away from the work area and used for watching the television etc. In practice it is difficult to imagine how this second part can be policed by HMRC.

The above advice only applies to employees and directors of a company, if you are self-employed different rules apply and the likelihood of the lenses being allowable in this instance diminishes significantly.

 

From: John Falcon / JF Financial

Can I claim glasses through my Limited Company?

 

 

star-paleBemused by all the rules? Nervous of accounts and tax? Need another pair of hands? 

Contact Quids & Quills and ask if I can help.

The right bank account for business

piggybankWhat’s Your Legal Structure?

Limited Company

If you are a limited company, your decision is made. You need a business bank account.

Your business is a separate legal entity to you and it needs its own bank account. You don’t need to worry if you have used your personal bank account so far, for a new business that’s normal. Your accountant can sort all that out for you.

What’s important now is that you open a business bank account.

If you don’t have an accountant already, you need one.

Sole Trader

If you’re a sole trader, you have more options.

One point though. If you’re a sole trader you ARE a business. It just means you’re not a company.

Option 1: Your Personal Bank Account As Your Business Account

This is a common option freelancers use when starting a business.

Starting a business sounds very grand. It can be as simple as you want to consistently work for clients and you are available and looking for clients (whether you have any or have been paid yet is a side issue). You’ve registered as a sole trader and bob’s your uncle, you’re a business.

You use your personal bank account as your business bank account and you have personal and business transactions in the same account.

Pro’s:

  • It’s simple
  • It’s easy
  • It gives you available credit by using your personal overdraft
  • You don’t need to wait for the bank to do its thing
  • You don’t need to go into a bank/bank website open an account all over again
  • You may not feel emotionally ready to open a ‘grown up’ business bank account
  • It can give you more flexibility when costs are higher than income

Con’s:

  • It probably breaks the terms and conditions of your bank account
  • You can’t have ‘trading as’ on your account name, so you can have payments cleared addressed to you or your business name
  • It allows you to pretend you don’t have a real business
  • It takes time, money and sanity separating out your business transactions from your personal
  • Some companies won’t hire you unless you have a business bank account
  • You can’t claim bank charges and interest as tax-deductible expenses
  • HMRC has an excuse to look into your personal affairs if you’re the random person they choose to check your business records

Remember, you can use personal credit/money to fund business investments (like coaching or a course) without mixing your personal and business bank transactions.

Option 2: A Business Bank Account

You use a business bank account as your business bank account.

The first step to having a grown up business is a business bank account. That doesn’t mean you need to jump in the river if you aren’t emotionally ready to open one yet. It can take time to be ready.

(If you’re a limited company and didn’t read what I said at the top of this article, you DO need a biz bank account so go get one.)

Let’s look at the pro’s and con’s of having a business bank account for your business.

Pro’s:

  • You can have ‘trading as’ on your account name so you can have payments cleared addressed to you or your business name
  • It allows you to feel proud of yourself that you have a real business and you’re in your money power
  • You can claim bank charges and interest as tax-deductible expenses
  • HMRC has no excuse to look into your personal affairs if you’re the random person they choose to check your business records
  • You kick ass when after an appointment justifying yourself to bank staff who have little idea of business or digital or home working or online business (frequently the case if anyone from a bank is reading this), you have yourself a business bank account and you’re on your way
  • It can be as simple and easy as filling in some forms, a half hour at the bank with a nice member of staff, and new gadgets through the post

Con’s

  • It can be a pain in the ass when banks treat you like an idiot, take ages, have no idea about what you’re doing and patronise your femaleness and ability to earn
  • If you have problems with forms, you’ll need to get a friend or biz friend to help
  • You may have less access to credit and it costs more
  • You need to wait for the bank to do its thing

Deciding To Use A Personal Or Business Bank Account

The pro’s and con’s divide into the ‘sensible’ logical ones that you’ll find on any business website.

Then there are the ones no-one talks about.

That’s why it’s such a personal decision.

(Please bear in mind that technically, any option other than having a business bank account breaks bank terms and conditions.)

Which is right for you?

It’s your decision as a sole trader whether you use a personal bank account for business or open a business bank account. (Limited companies, open a business bank account).

Take an informed decision from your heart as well as your head and keep it simple.

 

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Paraphrased from and with thanks to Rosie’s very useful posts at http://onemanbandaccounting.co.uk/

 

Last minute Tax Return panic?

File Tax Return!

9 signs you left your tax return to the last minute

Cast an eye over our 9 telltale signs and see if they sound familiar to you…

You don’t where to begin

In hindsight maybe it would have been wiser to take heed of those reminders.

Envelopes

You feel like taking a hammer to HMRC’s website

No wonder you left it this late. A glossary wouldn’t go amiss… nor would a stiff drink.

HMRC hammer

You’re in a paper finding panic

Strange forms, bills from yonks back, invoices from ages ago – you need them all apparently. Suddenly a filing system doesn’t seem so square.

Lost paper

You see numbers everywhere

Your vision resembles Neo’s in Matrix after hours spent looking at figures, an array of receipts and invoices giving the world a numerical glow.

Matrix vision

You wish you used an accountant

It’ll be easy, you thought. ‘Tax doesn’t have to be taxing’ they said.

SA Accountant

You’re thinking up outrageous excuses to get you off the hook

Pesky pets? World politics? Evading espionage overseas? The bigger the fib the better, the more wild the more chance it’ll work (you hope).

Espionage

You’re seeking others in the same boat

It’s comforting to know you’re not the only one in Self Assessment hell, so you’re searching the web for others sharing your predicament

Twitter

You fear for the future of your bank balance

As much as you wish you’d been sloppy, all the figures are in fact, correct. Time for another stiff drink – if you can still afford it.

SA bank balance

You promise yourself you won’t make the same mistake next year

That was pretty tense. Here’s to a more tranquil tax return next time…

Tax depressed

From: http://www.simplybusiness.co.uk/knowledge/articles/2015/01/9-signs-tax-return-last-minute/

 

star-paleBemused by all the rules? Nervous of accounts and tax? Need another pair of hands? 

Contact Quids & Quills and ask if I can help.

The new Dividend Tax Credit rules

HMRC

 

 

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.

The allowance is available to anyone who has dividend income.

Headline rates of dividend tax are also changing.

You’ll pay tax on any dividends you receive over £5,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

This simpler system will mean that only those with significant dividend income will pay more tax.

If you’re an investor with modest income from shares, you’ll see either a tax cut or no change in the amount of tax you owe.

Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an Individual Savings Account (ISA), will continue to be tax free.

From April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA).

The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.

 

star-paleBemused by all the rules? Nervous of accounts and tax? Need another pair of hands? 

Contact Quids & Quills and ask if I can help.

E-books – will VAT on them soon be reduced?

VATistockEuropean publishers and booksellers have welcomed the decision of the European Commission (EC) to allow VAT to be reduced on e-books, with sales now bound to go up, according to booksellers.

Brussels yesterday (1st December) released proposals for new tax rules, including delivering on its pledge “to enable Member States to apply the same VAT rate to e-publications such as e-books and online newspapers as for their printed equivalents, removing provisions that excluded e-publications from the favourable tax treatment allowed for traditional printed publications”.

The EC first committed to reducing VAT rates on e-books earlier this year. In an Action Plan published in April, part of its digital single market strategy, it said it sought to address “the unequal treatment of paper versus e-publications for VAT purposes”. At the time, Stephen Lotinga told The Bookseller he welcomed the prospect of “greater flexibility”, saying “the tax system should not act as a disincentive to reading and learning”.

Previously e-books have not been eligible for a reduced VAT rates – which printed publications such as books and newspapers enjoy – because they are classified as an “electronic service”. In the UK, for example, e-books attract a 20% VAT charge, where print books have a zero-rate of VAT, which has long been seen as unfair by the book trade.

Once agreed by all member states, the new set-up will “allow – but not oblige” member states to align the rates on e-publications to those on printed publications. Subject to agreement, this could enter into force mid- to late- 2017.

A spokesperson for the Treasury said that the department would “carefully consider” the proposals, although the decision will require unanimity between all member states to be imposed, The Bookseller undestands.

Stephen Lotinga, c.e.o of the Publishers Association, said the trade body would now be speaking with the government about lowering VAT on e-books in light of the EC ruling, now that the UK is leaving the EU.

“The UK tax system has long recognised that VAT should not be a disincentive to reading, education and learning,” he said. “We’re pleased that the European Commission has today recognised that nation states should have the freedom to apply this principle regardless of format. We will of course be speaking to the UK government about trying to ensure that VAT is not applied to any type of book both now and after we exit the EU.”

The measures are “destined to boost the e-book market and to further stimulate reading”, according to Jean-Luc Treutenaere, co-president of the European and International Booksellers Federation (EIBF). He said: “We are very happy about those decisions and now look forward to a swift adoption of the proposal by the council, since a measure destined to boost the e-book market and to further stimulate reading should be met with the utmost favour. The commission’s e-commerce VAT-related decisions will definitely make sales of e-books easier for booksellers.”

Federation of European Publishers (FEP) president Henrique Mota meanwhile called it “a great day for our organisations” and “a fundamental step forward”.

“The commission’s proposal rewards our years of advocacy for the recognition that all books deserve the possibility to be applied reduced rates of VAT, independently from their format,” he said. “We are grateful to the commission for this fundamental step forward, and also to the European Parliament for its constant support, as well as to all the other associations that contributed to this result.”

 

From The Bookseller
Published December 1, 2016 by Katherine Cowdrey and Lisa Campbell

http://www.thebookseller.com/news/fep-and-eibf-welcome-ec-decision-reduce-vat-e-books-441101

 

New tax free perks for limited companies

turkeyDid you know that HMRC brought in new rules for the 2016/17 tax year for limited companies in relation to ‘trivial benefits’.

This allows ‘close’ limited companies to provide directors with up to £300 of tax free perks / gifts for the tax year.

There is a cap on each benefit of £50.

The £300 annual cap for the tax year applies to each director, so a husband and wife limited company will have £600 in total (assuming both are directors/company secretary).

These figures are inclusive of VAT and be aware that a trivial benefit cannot be cash or a cash voucher (a voucher which can be exchanged for cash).

For example, your limited company could provide you with a turkey at Christmas – not only would this come out of your companies pocket rather than your own, your company would also get 20% corporation tax relief on the cost!

 

Credit to: John Falcon, JF Financial

Tax Planning Guide for Limited Company Freelancers and Contractors

 

 

star-paleBemused by all the rules? Nervous of accounts and tax? Need another pair of hands? 

Contact Quids & Quills and ask if I can help.

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