Certain MPs got into hot water recently for including the cost of preparing their personal tax returns in their expense claims. Employees and company directors, including MPs, are not permitted to claim the cost of personal tax advice, or the cost of preparing their personal tax return as a deduction from their taxable income. If those costs are born by their employer, the cost should be treated as a benefit in kind, reported on the form P11D and taxed accordingly.
Where an individual runs his own business as a sole-trader, his personal tax return must include details of the turnover, expenses and profits of his business. The cost of preparing and completing that part of the tax return is tax allowable as that cost relates to the business and not to the individual's personal affairs. Where the remainder of the personal tax return requires little effort to complete the Taxman will, by concession, allow the whole of the cost of preparing the sole-trader's tax return to be treated as a tax allowable business cost.
Friday, December 11, 2009
Tax Relief on Accountant Fees
Help with Business rates
More time to pay your 2009-10 business rates increase
On 31 July, local authorities will be writing to local businesses offering them the option to spread payment of this year's inflation up-rating to business rates over three years, under new legislation announced by the government in March.
Business rates are adjusted every April in line with the Retail Prices Index for the previous September. The new measure is designed to smooth the effects of the spike in inflation of 5 per cent in September, which would have seen businesses facing an impact on their cash flow this year.
From 31 July:
- All business ratepayers can apply to their local council to put off 3 per cent of their whole year's 2009-2010 business rates bill. So, if a yearly bill is £5,000, ratepayers will be able to postpone paying £150.
- Those who accrued a rise in their bill because transitional relief has come to an end can defer 60 per cent of the increase.
VAT increase
The standard rate of VAT is due to rise from 15% to 17.5% on 1 January 2010. This small rise in VAT may encourage people to make large value purchases in December 2009 rather than in January 2010, but there are other ways to take advantage of the lower VAT rate.
Where services or goods are invoiced for in advance, the VAT rate applies according to the date of the invoice. Say an organisation normally raises invoices for its annual membership fees on 2 January each year. If the 2010 membership invoices are raised on 1 December 2009 the members don't have the VAT increase and the organisation would receive at least some of its membership income earlier.
The VAT rate to be applied to a sale normally depends on the tax point for that transaction. This tax point is usually when the customer receives the goods or services. However, that tax point is superseded by an earlier date if the money is received before the supply of goods or services, or by the invoice date if that invoice is raised within 14 days of the goods or services being supplied.
When the VAT rate changes in the middle of these dates, you can choose whether to apply VAT at the date when the goods were supplied, or the date the invoice is raised. If you supply goods on say 24 December 2009, but raise the invoice on 4 January 2010, you have the option of charging 17.5% VAT rate based on the invoice date of 4 January 2010, or 15% VAT based on the date the goods were physically supplied.
Where you are supplying a service over a period that straddles the VAT increase, the VAT man will, by concession, allow you to charge VAT at 15% for the portion of the work done before 1 January 2010 and 17.5% VAT for work done on or after that date. Alternatively you can apply the usual rules and charge VAT according to the date the invoice is raised, or the payment is received, which ever happens first.
There are tax-avoidance rules which will add an extra 2.5% supplementary VAT charge where the value of the sale (and connected sales) total more than £100,000, or the customer and supplier are connected, or the payment is due more than six months after the date of the invoice. Talk to us if your sales are likely to fall into any of these categories.
Christmas Gift
- Gifts to customers of the products or services you normally sell are tax allowable, as long as you are not in the food business.
- Small promotional gifts of any item are also treated as tax allowable for your business if they cost less than £50 each and carry a clear advertisement for the business. However, you cannot get income tax or corporation tax relief for the cost of gifts of food, drink, tobacco and gift tokens of any value.
- A number of gifts worth more than £50 in total should not be made to the same person in any 12-month period.
- If you are VAT registered you can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.
- If the gift cost more than £50 (net of VAT) you must account for the VAT on the item as if you had sold it at cost.
Gifts to your staff are tax allowable, but your employees could be taxed on the value of the gift as a benefit in kind. In that case you would also have to pay Class 1A NI on the value of those gifts. The Taxman does consider some small items to be trivial benefits, which can be given as tax-free gifts to staff members. Trivial items can include seasonal gifts such as a turkey, an ordinary bottle of plonk (not fine vintage or champagne), or a box of chocolates.
Where you are considering making larger gifts to each employee such as a Christmas hamper, you can include the cost of those gifts in a PAYE Settlement Agreement (PSA) with the tax office. The PSA allows you pay the tax and NI due on behalf of your employees.
Beware Tax Email Scams
The UK tax office HMRC does not send
Fraudulent
Bad Debt
Say your accounting year end is 30 June 2009, and one of your customers fails in October 2009 leaving the sales invoices it received in April, May and June all unpaid. Where it is clear that you will not receive payment from the liquidators or administrative receivers of that business for those sales invoices, you can include the bad debt built up between April and June 2009 in your accounts to 30 June 2009. This applies as long as your June 2009 accounts have not been finalised by the time you receive confirmation of the bad debt. Any sales made to this customer between July and October 2009 will need to be written off in your accounts to 30 June 2010.
This is a clear example of business failure, but bad debts can also arise where your customer is still trading. Before we finalise your accounts to submit them to the Tax Office or to Companies House, we need you to undertake a thorough check of all your sales debts. Where you can identify specific debts that are unlikely to be paid, and you have made every effort to recover the money due, those amounts need to be written off in your accounts. This will reduce your taxable profits, and avoid you paying tax on money you are very unlikely to receive.
VAT on bad debts can only be reclaimed six months after the due date for payment for the invoice. You must also pay over the VAT due to the VATman before it can be reclaimed. If you use the cash accounting scheme for VAT you automatically get relief for unpaid sales debts, as you do not account for the VAT due until the sales invoice is paid. Any business with a turnover of under £1.35 million can join the cash accounting scheme.
Are you having problems to pay your tax bill? Vertice Services can help you. New Business Payment Support Service
From 24 November 2008, HMRC has introduced a new, dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions.
If you're worried about being able to meet tax, National Insurance, VAT or other payments owed to HM Revenue & Customs (HMRC), or you anticipate that payments coming due will cause you problems, you can contact Vertice Services and we will call the Business Payment Support Line on your behalf.
HMRC’s staff will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. They will not charge additional late payment surcharges on payments included in the arrangement, although interest will continue to be payable on those taxes where it applies.
Please note: The Business Payment Support Line is for new enquiries only. If HMRC has already contacted you about an overdue payment, or if you already have a payment arrangement with them, please let us know.
Tips and Service Charges
If tips are paid directly to your staff by the customers, those employees should declare the amounts they receive in tips to the Taxman on their personal tax returns, but you don't have to worry about the tax situation. Where the tip is paid to you as the employer, perhaps as an additional amount on the credit card bill, and you decide how to distribute the total tips pool (known as the tronc), among your staff, you must deduct both PAYE and NICs at the relevant rate for each employee.
Where someone else manages the tronc, perhaps the manager who is not the employer, that manager must deduct PAYE but not NICs from the payments of tips to staff. Please talk to us if you uncertain about how to handle tips paid to your staff.
Thursday, October 15, 2009
Help with Business rates
More time to pay your 2009-10 business rates increase
On 31 July, local authorities will be writing to local businesses offering them the option to spread payment of this year's inflation up-rating to business rates over three years, under new legislation announced by the government in March.
Business rates are adjusted every April in line with the Retail Prices Index for the previous September. The new measure is designed to smooth the effects of the spike in inflation of 5 per cent in September, which would have seen businesses facing an impact on their cash flow this year.
From 31 July:
- All business ratepayers can apply to their local council to put off 3 per cent of their whole year's 2009-2010 business rates bill. So, if a yearly bill is £5,000, ratepayers will be able to postpone paying £150.
- Those who accrued a rise in their bill because transitional relief has come to an end can defer 60 per cent of the increase.
Expenses
Personally paying for expenses
You may have incurred expenses in getting your business up and running before setting up your company but the receipts for these will be in your name. Can the company now claim a tax deduction for these, and will this affect your tax?
In the beginning
Before you set up a company you wanted to be sure that you had a viable business. So, you personally paid for travel and other costs to carry out market research etc. before forming the company through which your business would run. But can tax relief be claimed for these costs and who should claim it?
Two types
This so-called pre-trading expenditure for companies can be incurred in two ways:
• by an individual before the company was formed
• by the company after it was formed but before it started to trade.
The company paid
In the latter case the rule is fairly straightforward. If the expenditure would have been allowable for tax had the company been trading at the time it was incurred, then a tax deduction can be claimed for it in the company’s first accounts. s.61 of the Corporation Taxes Act 2009 says that the expense is to be treated as if the company had incurred the cost on its very first day of trading. But the position is more tricky if a would-be director or employee paid the expense before the company was formed.
The director paid
You would think that if the expense was incurred by a director-to-be for a legitimate business purpose, it should qualify for tax relief under the pre-trading expenses rule. The problem is that the Taxman’s rules say that the person (or company) who incurred the expenditure must be the one who claims the tax relief. No matter how you look at it, the company and the individual are clearly not the same person. So is there a solution?
Expenses claim
Example. Jim was an engineer who after being made redundant in 2007 decided to set up his own workshop. In the process of getting the business going he paid several hundred pounds on travel to negotiate with potential customers etc. Jim went ahead with the business, and on advice from his accountant he formed a company Jimeng Ltd on April 1 2008. Even at this stage in October 2009 Jim can claim the pre-incorporation travel expenses from his company. And as this is a current cost, the company can claim CT tax relief for this in its 2009/10 accounts. But where does that leave Jim?
Expenses of employment?
The expenses Jim receives from his company are taxable unless they relate wholly and exclusively to his employment. But the company wasn’t even formed at the time he incurred them, so there’s no chance that could apply. We decided to challenge the Taxman on this apparent inequity. After consideration the official line is that the Taxman will accept that expenses received by a director in these circumstances are not taxable. That’s good news for common sense!
Tip. If you paid out business expenses on behalf of your company before it was formed you can reclaim them tax-free from your company even if they date back several years. But make sure you have receipts etc. to support your claim
New company forms from 1st October
When something changes with the set-up of your company, such as a new director, change of company name or registered office address, you need to fill in a form and send it to Companies House. All the forms that are used to report these events are replaced with new versions for changes effective from 1 October 2009 or a later date. You must use the new form to report the change as the old form will be rejected and this could lead to your company being fined if the event is not reported within the statutory deadline.
Most of the new forms can be filed online through the Companies House website, which is quicker, cheaper, and more secure than sending a paper form through the post. If you sign-up to the Companies House PROOF scheme you can only file changes to your company's details online. This prevents anyone hijacking your company by submitting a fraudulent paper form.
Beware Tax Email Scams.
The UK tax office HMRC does not send
Fraudulent
Late tax returns and penalties.
The Taxman does not have much patience when it comes to late delivery of tax returns and has instructed his computer to send out £100 penalties every six months. The first penalty would have been issued in February 2009 and the second one in August 2009. If the Taxman gets really cross he will ask the Tax Tribunal to issue daily penalties of up to £60 per day, until you do deliver a complete tax return!
If you have paid all the income and capital gains tax you owed for 2007/08 by 31 January 2009, or you are due a tax repayment for that year, the £100 penalties can be reduced to nil. However, you do have to appeal against the £100 penalty notices to claim the reduction.
Late Payments: If you have not paid all the tax you owe for 2007/08 you will have been issued with a 5% surcharge in February and another 5% surcharge in August, plus interest will be mounting up at 2.5% on the amount owing. This interest rate on late tax increased to 3% from 29 September 2009. Where you have agreed a time to pay plan with the Tax Office, and are paying the instalments due under than plan on time, the 5% surcharges should not have been raised. If this is the case the Tax Office should be contacted as soon as possible to get the 5% surcharge cancelled.
Are you having problems to pay your tax bill? Vertice Services can help you. New Business Payment Support Service.
From 24 November 2008, HMRC has introduced a new, dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions.
If you're worried about being able to meet tax, National Insurance, VAT or other payments owed to HM Revenue & Customs (HMRC), or you anticipate that payments coming due will cause you problems, you can contact Vertice Services and we will call the Business Payment Support Line on your behalf.
HMRC’s staff will review your circumstances and discuss temporary options tailored to your business needs, such as arranging for you to make payments over a longer period. They will not charge additional late payment surcharges on payments included in the arrangement, although interest will continue to be payable on those taxes where it applies.
Please note: The Business Payment Support Line is for new enquiries only. If HMRC has already contacted you about an overdue payment, or if you already have a payment arrangement with them, please let us know.
When is paying a dividend illegal?
In both cases additional tax may be due from the company and sometimes from you.
To pay a legal dividend it is not sufficient just to write 'dividend' on the cheque stub or against the entry in director's loan account.
We recommend following these steps when paying dividends...
1. The directors should first review the profits available for interim dividends. This is not the same thing as funds in the bank account, as you have to take account of other assets and liabilities. Those deliberations should be recorded as a formal board minute, so if the Taxman ever asks, you can prove the profits were there when the decision to pay an interim dividend was made.
2. If the final accounts for the year are complete and show the accumulated profit and loss account is positive, the directors can recommend that the profits, which are not required for investment, can be paid out as a final dividend to the shareholders. The shareholders can either accept the directors' recommendation or suggest a lower figure of dividend. Both these decisions also need to be properly recorded at the time they are made.
3. Dividend vouchers need to be prepared when either a final or interim dividend is paid, for each shareholder showing the total due, the tax credit attached to the dividend and the date of payment.
4. The dividend should be paid. The payment can be transferred from the company's account by cheque or bank transfer into the shareholder's own bank account. If the shareholder is a director his account in the company books may be credited with the dividend due to him or her, but this needs to be done as soon as possible after the decision to pay a dividend is taken.
We can help you with all this paperwork, but it is important that the decision to pay a dividend is made in advance of any payment being paid out of the company.
