Tax-Free Childcare

Posted on May 20, 2013 by

The Government is proposing a new Tax-Free Childcare scheme which will help around 2.5 million working families, which was one of the major announcements in the 2013 budget.

HOW MUCH HELP CAN I GET?

Eligible families will get 20% of their annual childcare costs up to £6,000 per child, paid for by the Government. This is a potential saving of £1,200 per child, per year.

WHEN DOES IT START?

The scheme will be phased in from Autumn 2015 and will replace the existing childcare vouchers programme, which is currently offered by fewer than 5% of employers.

WHO QUALIFIES?

In order to eligible for the scheme both parents must be working, or one parent works in single parent families.

The scheme is open to employed and self-employed parents.

Initially, it will cover children up to 5 years old, but will build up over time to include all children under 12.

ARE THERE ANY RESTRICTIONS?

Yes, each parent must earn less than £150,000 a year.

The scheme will be unavailable to those who receive tax credits (or Universal credit when it comes into force).

HOW WILL IT BE ADMINISTERED?

Full details of the Tax-Free Childcare will be set out following consultation but it is expected that parents will have an online account and their payments will be topped up by the Government.

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Workplace Pension Reform

Posted on May 13, 2013 by

Due to an ageing population, we are seeing increasing numbers of people collecting state pensions. With this number set to increase even further, and as peoples retirement aspirations grow, relying on state pension alone may not be enough in the future. To pre-empt the situation where people are left dissatisfied with their retirement arrangements, the government has recently made changes to the workplace pension’s law.

A workplace pension is a simple step towards saving for a better future. For every contribution made by an employee towards the retirement fund, the employer and government also make a contribution. The scheme is designed to be simple for the employee, as all the responsibility, time and resource required to comply with the law is focussed on the employer.

Pension

When will this impact your business?

This reform will be phased into businesses over a six year period, beginning with large employers from October 2012. Small and micro businesses with 30 employees or less will not have to comply until June 2015. All employers will be issued with a date they must begin compliance with the workplace pension reform, or ‘Staging Date’. You can check your ‘Staging Date’ at:

www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx

What are your responsibilities as an employer?

You will need to carry out an assessment on your employees to determine whether they are  ‘eligible jobholders’ who are automatically enrolled in your pension scheme, ‘non-eligible jobholders’ who have the right to opt in, or ‘entitled workers’ who have the right to join.

If you already have an existing pension scheme, you should check whether this meets the criteria for a qualifying pension scheme, or if you need to find a different scheme.

It is your responsibility to communicate to your employees what automatic enrolment means to them. The employee is then free to choose whether they want to remain in the scheme, or wish to opt out.

You will need to register and communicate with The Pensions Regulator, and communicate the specific information with them, as well as keeping records for up to 6 years.

It is also your responsibility is to make the minimum contribution to your employees’ pension. This will start at 1% and increase gradually.

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When is a hobby not a hobby?

Posted on May 6, 2013 by

When is a hobby not a hobby2Many of us partake in hobbies which are purely for our own pleasure.  Sometimes,  however, particularly if those hobbies are of a creative nature, they can be appreciated or utilized by third parties, which often means they are accompanied by a monetary transaction.  Is this type of income taxable?  It depends.

WHAT IS YOUR INTENT?

As far as HMRC are concerned, hobbies are not normally considered to be a trade, and therefore any incidental income is not taxable.  However, you should consider the following checklist which the Inspector uses to determine whether or not you are trading rather than indulging in a pastime:

  • Are you seeking to make a profit?
  • Is the income frequent and of a similar nature?
  • If you are selling assets, how long have they been in your possession and why are you selling them?
  • Is the income connected to an existing trade?
  • Do you advertise or promote the items you are selling?

These criteria are known as the “badges of trade” and can be used to determine your intent – i.e., to make a profit, or just to reimburse your costs.

For example, if you are making occasional greetings cards  for third parties and being reimbursed for the costs  you have a different intent than if you are advertising and regularly selling at a price that includes an added amount for your time and skill.

Similarly, if you purchased an antique, kept it for a year or so and then sold it on E-bay, your intent would be different than if you were regularly buying antiques for the purpose of selling them in an auction.  (Note:  If that single item was sold for more than £6,000, any profit (or gain) would however be liable to capital gains tax. )

WHAT MUST YOU DO?

If the badges of trade do suggest you are trading, then you must register your activity with HMRC, within 3  months of the date you began, even if your income is minimal.  Failure to do this may result in a fine of £100.  You will also be liable to pay Class 2 NIC (self-employed stamp) and to complete a self-assessment return for each year your trading activity continues.  You are also obligated to keep adequate records of your income and expenditure, so that you can accurately determine what profit  (or loss) you have made.  Generally speaking, losses can be set against your other income for the same tax year, although if the Inspector considers that you are purposely not seeking to make a profit, he may disallow the set-off.

Many successful businesses started off as hobbies for their proprietors, and it  can be very satisfying as well as rewarding to earn your living by indulging in your favourite pastime or sharing your particular talent with others – just don’t forget to share it with the taxman!

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The Benefits of Using Sage

Posted on April 29, 2013 by

The benefits of using sage

Sage bookkeeping software is a highly useful tool for businesses where a traditional manual cashbook is insufficient. Once businesses grow past a certain size, writing each invoice into a cashbook or simply keeping a large pile of invoices ready for the end of the tax year becomes impractical.

Sage allows the user to enter sales and purchase invoices, receipts and payments into the software, and automatically calculates the VAT applicable. Invoices can be entered on a batch basis to save time, as well as allowing standing orders to be input to take place each month, for example.

As the VAT is automatically calculated, Sage can be used to generate your business’s VAT returns on the computer, ready to be easily submitted online to HMRC.

Sage allows the use of separate customer accounts, where invoices can be posted when raised. Through examining the activity in these accounts, it is simple to view which customers owe money and how much, so that overdue accounts can be highlighted and chased.

Sage software allows the generation of various useful reports relating to different aspects of the business. A profit and loss report can also be generated, either monthly, covering the year to date or at the end of the year. These reports show the profitability of the business, as well as detailed breakdown of expenses, highlighting what outgoings relate to and areas where savings may be made.

Sage is also useful when it comes to preparing your business accounts at the year end. If Sage software is used correctly, this is very useful to accountants, and may mean that your accounts may be completed more quickly and easily, and hence may save your business money on accountancy.

Green & Co are proud to be one of only a handful of Sage Accounting Partners in Wales, meaning that we employ experienced staff who can offer help and advice when it comes to using Sage, or one of our bookkeeping staff can keep Sage up to date on behalf of your business. We are also able to purchase Sage software at discounted prices, and pass this discount on to our clients. If you would like to find out more about any of these services, please contact us.

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Employment status: Get it Right

Posted on April 22, 2013 by

Employed or self employed

Employment status has always been, and will no doubt continue to be, a contentious issue for HMRC. Whether an individual is employed or self employed is not a matter of choice and employers and contractors must ensure that they are engaging workers under the correct contract. A employee will have a contract of services, whereas a sub-contractor will have a contract for services. It is vital to classify your workers correctly as, along with other factors, this will determine the  tax and national insurance treatment which they are subject to. For example, employees can attract an employer’s national insurance liability, whereas a self employed person will not. HMRC can carry out a status enquiry if there is any doubt surrounding the status of workers and demand reimbursement where they find an incorrect contract is in place.

In order to determine the ‘reality’ of an individual’s status, HMRC have set out certain criteria which can enable a decision. For example, do workers provide their own equipment, can they decide their own working hours, can they send a substitute in their place and do they bear the financial risk.  Other considerations include: entitlement to statutory payments, length of engagement and the existence of a mutuality of obligations. This is not an exhaustive list however and the rules can differ across industries.  If ever there is any doubt on the status of your worker, advice must be sought.

For further advice, please contact Green & Co.

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HMRC bid to ‘catch’ those not fully declaring income

Posted on April 15, 2013 by

undeclared income

HMRC have released a statement that, using new technology and an increased number of staff, they intend to close in on those not declaring all of their income!

The prospect of having to deal with your tax affairs can be daunting and as a result, people will often refrain from registering with HMRC at the appropriate time.

It is common for people to assume they are not subject to tax on income they receive outside of their employment as they do not consider themselves to be ‘business owners’ however there are various sources of income that may give rise to a tax liability.

Examples of possible sources of income that can lead to you needing to pay tax are;

  • Rental income received from any properties you may own
  • Selling on the internet, car boot and trade magazine sales
  • Capital gains made on the sale of an asset
  • Being self employed without realising

What if you are already registered as self employed?

Even if you are correctly registered as being self employed you still need to be aware of further tax you may be liable to, for example;

  • An increase in sales could suddenly lead to you reaching the threshold at which you need to register for VAT purposes .
  • Capital gains made on the sale of an asset
  • Rental income received from any properties you may own

Remember, if HMRC discover that you owe taxes, you will also have to pay interest and possibly a penalty.

If you have any concerns that you may fall in to any of the above categories, here is a link to further information provided on the HMRC website; http://www.hmrc.gov.uk/undeclaredincome/gettingstarted/tax-affairs.htm

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Thinking of investing in large Plant and Machinery?

Posted on April 8, 2013 by

Annual Investment Allowance

Take advantage of the Temporary Annual Investment Allowance Increase

Back in Autumn 2012, the chancellor made a surprise announcement to increase the maximum amount of annual investment allowance (AIA) from £25,000 to £250,000 from 1st January 2013 for a temporary period of 2 years. (Following which, the allowance limit will drop back down to £25,000 from 1st January 2015).

The AIA gives a 100% tax relief for the cost of qualifying plant and equipment, up to a capped annual limit -now £250,000.

HMRC have estimated that this accelerated tax relief measure will benefit 90,000 businesses, spending over £25,000 a year on qualifying plant and machinery. The increase in capital allowances will provide a cash-flow benefit, likely to be of help to small and medium sized businesses which will stimulate the growth of the economy.

It is important to determine the optimum time to make your investment so you receive the highest amount of tax relief available –as the annual allowance is allocated according to the date of expenditure and the accounting period in which it falls into. If your accounting period is 1st January 2013 to 31st December 2013, the full £250,000 applies. But if your business has an accounting period different to this, the allowance will be proportioned and the calculation is slightly more complicated. For example, if your business has a yearend of 31st March 2013, you will need to split the allowance between your accounting period, as follows:

1st April 2012 – 31st December 2012 = £25,000 x 9/12 = £18,750

1st January 2013 – 31st March 2013 = £250,000 x 3/12 = £62,500

In this accounting period, the business will be entitled to a maximum AIA amount of £81,250; however the expenditure must be spread over those two periods to gain the maximum advantage.

You will also need to remember to apportion your AIA again when this temporary £250,000 limit ends and your accounting period straddles the 1st January 2015.

Any qualifying expenditure exceeding the AIA annual limit is also entitled to further tax relief (known as ‘Writing down allowance’) at an annual rate of 18% or 8%, depending on the nature of the item purchased.

Please note the following items that do NOT qualify for AIA:

  • Cars
  • Plant and machinery previously used for another purpose, E.g. a computer used at home and introduced into your business
  • Plant and machinery gifted to your business
  • Expenditure incurred in the accounting period in which your business ceases

Whilst the government gave us little time to prepare for this, if your business is looking to grow and invest now is the time to take advantage. Before purchasing, please check how and when this will affect you. Of course, this has to fit within your business thinking and only if you have the available finance.

For further information and advice please contact us or check out HMRC’s guidance on their website http://www.hmrc.gov.uk/capital-allowances/plant.htm#3

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Changes in the Audit Exemption Limits to Reduce the Burden on Small Companies.

Posted on April 1, 2013 by

changes in audit exemption limits

Audit exemption thresholds have been relaxed reducing the burden on many small businesses. An audit is an independent and unbiased assessment of the financial statements. Currently, companies have to be audited if they have a turnover of more than £6.5 million or a balance sheet total of more than £3.26 million.

The main purpose of an audit is to give shareholders and other external stakeholders peace of mind that the figures included in the accounts are accurate and show a ‘True and Fair’ view. As many small companies are owner managed and there is less of an external dependency on the figures the need for audited figures is reduced.

The rules are being relaxed enabling an estimated extra 120,000 companies to claim audit exemption. Although companies can still choose to be audited if they wish.

The new thresholds will apply to companies with accounting year ends on or after 1 October 2012. Companies will be able to claim audit exemption if they satisfy two of the following criteria; turnover of less than £6.5 million, balance sheet total of less than £3.26 million and less than 50 employees.

It is said that the relaxation in the thresholds will save small companies millions per year and free them up to expand and grow their business.

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BUDGET REVIEW

Want to see the changes following the 2013 Budget? Check out our Review here.

 

 

Link | Posted on March 27, 2013 by | Tagged , , | 2 Comments

More than one home? – Have You Considered Principle Private Residence Relief

Posted on March 25, 2013 by

PPR

Capital gains tax is not typically a consideration when selling your own home if it is your only home and main residence and has exclusively been used as a home. This is due to a tax relief known as Principle Private Residence (PPR).

However, if you own more than one home, for example if you live in one property during the week and another at weekends, then PPR can be a valuable tax relief. If you are in this position then you can elect which property is to be your PPR and this can produce significant tax savings on the eventual disposal of the properties, if proper tax planning is undertaken.

This election must be made within two years of acquiring the second property and in the absence of such an election HMRC will decide the PPR based on facts.

Another consideration, if you have occupied a home as a PPR and have let it for residential purposes, is lettings relief; which can also be used to produce tax savings.

Additionally, it is important to consider which periods of ownership qualify for PPR relief, for example, as long as the property has been your only or main home at some point during the time in which you have owned it, the final three years of ownership will be deemed occupancy. There are other examples which will count towards occupancy.

In order to minimise future capital gains tax it is important to consider a PPR election and plan effectively. For further information, please contact Green & Co.

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