Michael Robins Limited

Chartered Certified Accountant
& Chartered Tax Adviser

01488 686379

Tax Tips

Not all accountants are the same. We are a firm of Chartered Tax Advisers as Mike is a member of the Chartered Institute of Taxation, where most members qualify as accountants before taking these tax exams. It is the Gold Standard in tax qualifications in the UK.

There are even some local firms claiming to be “tax specialists”, without this qualification.

Here is a selection of tax related matters which we will always be on the look out for when dealing with your affairs.

 

Employers

Alternatives to salary

Paying staff is expensive with the additional employers national insurance. An increasing number of companies and employers are adopting salary sacrifice schemes to benefit both the staff and also the employing company.

The following are common alternatives to salary:

Childcare vouchers
Paying gym subscription
Private medical scheme
Purchase and provision of mobile phone
Payment of school fees
Pension schemes

Some alternatives are tax-free (childcare vouchers, payment into pension schemes) whereas some are liable to just tax by the employee but continue to attract employers national insurance.

It is essential where paying alternatives to salary that contracts are between the employing company and the supplier, otherwise the payment will be liable to employees national insurance and then everyone can end up worse-off.

Avoid tax on private fuel

Employees appreciate the perk of an employer provided car. This will of course be liable to income tax.

Where private fuel is also provided by the employer then this is also liable to tax. The tax charge is forever increasing and HMRC have announced the taxable benefit until 2015/16. What is often not appreciated is that the tax charge payable by the employee can be greater than the private fuel than is paid by the employer.

Purchase of car for children

Until March 2015 a company will get 100% tax relief for cars where the CO2 emissions do not exceed 95g. At the same time these low emitting cars attract a smaller benefit in kind of up to 10%. Why not purchase your child’s first car through your company?

Share schemes to reward staff

We can help with setting up share schemes for companies offering shares to their key employees. These are tax advantageous and help to retain staff. There are a number of ways that schemes can be set up.

One option is where the employees hold options but cannot acquire shares until the company is sold and they will then realise a gain straight away. Alternatively, employees could be offered small minority stakes in the company and then annual bonuses paid in the form of dividends.

Care will be needed to avoid any HMRC challenge and also surrounding the company law aspects of staff owning shares.

Payment of pension contributions

An employer can contribute to a pension scheme of up to £3,600 gross for anyone. Even those not employed. Why not pay into your spouse’s pension, or child’s pension. You will get tax relief as opposed to them needing to fund the contribution out of post-tax salary / other earnings.

VAT

Flat rate VAT scheme

If your annual VAT-inclusive income is below £150,000 you can adopt the flat rate VAT scheme (FRS) whereby your VAT returns are calculated using a simple percentage of the gross income. You cannot, however, claim VAT on expenses, unless on capital expenditure exceeding £2,000.

The aim of the scheme is to simplify the administration and save time although you will still need to charge VAT, raise sales invoices as normal.

You can (or would want to) switch to flat rate VAT if your annual VAT liability would be lower using the FRS but must do so via a form to HMRC.

Annual accounting

If your turnover is less than £1.35m you can file one VAT return each year. You will make nine payments “on account” of the annual VAT bill and then a final balancing payment two months after the VAT period. Some clients prefer the fixed monthly amount to pay, although you need to be aware that each instalment is enough so as to avoid large balancing payments.

You can also adopt the flat rate scheme with the annual accounting scheme together.

VAT on mileage claims

Where you pay mileage claims to your employees you can reclaim VAT on a small proportion. Out of the 45p per mile paid (up to 10,000 business miles) around 15p to 18p, dependent on the car, will deemed to be fuel of which VAT is included. The VAT is therefore 2.5p or 3p multiplied by the number of miles.

These claims are often relatively small – and therefore not always thought about – but over a year could easily be a few hundred pounds. If this has been overlooked – and you can go back four years – then a claim could be sizeable by adjustment to the next VAT return.

VAT on staff entertaining

Many businesses do not claim VAT on the entertainment of staff under the incorrect assumption that VAT on entertaining isn’t allowable. Where parties and other events are for employees and non-employees then the VAT can be claimed on the proportion relating to staff. You will need to apportion the expenditure between employees and non-employees.

As claims for input VAT can go back four years you may want to revisit the VAT on any expenditure.

Fuel scale charges

The easiest thing to be picked up on a VAT inspection is a business not paying scale charges when due where private fuel is provided. The charge is based on the CO2 emissions on the car.

However, it may save money to not claim VAT at all on fuel as the scale charge will outweigh this. For example, a normal family car with CO2 emissions of 160g/km, say, would lead to VAT payable of £245 a year. This equates to fuel cost of £1,470. If the private miles are not significant, then you might want to refrain from claiming VAT on fuel if this is less than £1,470 a year.

Alternatively, where a husband and wife run two cars in the business, you might restrict claiming on VAT on fuel to just one car and therefore only accounting for scale charges on that one car.

Research and development tax relief

The Government introduced generous tax reliefs in order to encourage companies to invest in new technology and methods.

Qualifying expenditure will be eligible for tax relief at 225% (£10,000 spent means £22,500 claimed against tax).

Fixed assets used for the R&D will attract 100% tax relief in the year of expenditure

Trading losses attributable to the R&D can be sold back to HMRC for a cash refund – as opposed to waiting until a future profit is made.

There are certain conditions to be met but HMRC has a large pot of money to give away.

Self employed

Choice of year end

When starting self employment, or in partnership, you have a choice of accounting year end for the first period.

A date early in the tax year (end of April, end of May etc) will mean you create overlap profits and will pay tax twice on the first year’s profits. However, these have an advantage because when you cease to trade you will get a deduction for these overlap profits and in a later year your tax rate may be higher so overall there will be less tax.

Change of accounting date

For existing businesses you can change your accounting year end. Where profits are rising you might want to shorten your accounting year end as this will end with lower taxable profits in the year of change. Alternatively, where profits are falling you could extend the year end, possibly by deducting overlap profits that arose when you first started, or by deducting a proportion of the preceding year, and you will end up with lower taxable profits.

Of course, you are only permitted to change your accounting year end for commercial reasons and not just to save tax. But aren’t all change of year ends to do just that?

Passing on your business

A gift to family members should be free from taxes assuming the business is wholly or mainly business assets.

A sale to a third party can take on two forms, a sale of assets (goodwill, fixed assets etc) or a disposal of company shares.

The disposal of trading company shares would often be liable to just 10% tax where certain conditions are etc. However, should the company sell the goodwill and other assets then it would pay tax on any gains made. The shareholders would then need to wind up or liquidate the company in order to transfer the monies out of the company and into their individual hands. This would also be liable to tax and so there is an element of double taxation.

Understandably the seller will often wish to sell shares, whereas the buyer will want to acquire the assets of the company. This is where negotiation will be required including preparation of what if calculations.

In some circumstances it is possible to receive part of the sales proceeds via shares or loans in the buying company. With careful planning it may be possible to eventually withdraw from the buying company with no tax at all.

We can help with structures to pass on the business / company to employees.

Tax breaks for investment

Individuals can invest in shares in companies which qualify as Enterprise Investment Schemes, or Venture Capital Trusts. Tax relief is available on investment and on sale of the shares.

Companies can also undertake similar investment.

Inheritance tax planning

An individual’s estate will be liable to tax at 40% above £325,000 of assets that are passed on. Leaving assets to your spouse are exempt. By utilising available reliefs and other lifetime exemptions it is possible to reduce or eliminate the tax. Inheritance tax is generally a “voluntary tax” as individuals can normally arrange their estates to avoid tax but the key issue is timing and being brave enough to give up assets which are being “saved up for a rainy day” and all too often that day never comes.

There are a number of IHT schemes but these are a little aggressive with HMRC. Why not arrange your assets so that they qualify for business property relief, such as investing in companies, or on the Alternative Investment Market?

Capital gains tax on sale of investment properties

A sale of a property will generally be liable to capital gains tax. Where the property has been owned and lived in as the seller’s main residence at some point then some of the gain will be exempt. Alternatively it might be possible to arrange for the seller to move into the property for a period so as to secure a period of exemption.

Whatever the situation, the disposal and gain will need to be disclosed to HMRC. They will probably be aware of the disposal and are now making more use of information to target landlords who do not disclose such disposals.





email mike@mikerobinscta.com

Michael Robins Limited
Chartered Certified Accountant & Chartered Tax Adviser
Maple Suite, 10-12 High Street, Hungerford, Berkshire, RG17 0DN
email: mike@mikerobinscta.com | Tel: 01488 686379

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