Doctor, Doctor: Are Medical Expenses Tax Deductible?

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The question of whether medical expenses are tax deductible is one which is frequently posed and we can consider this using the example of a self-employed farmer who seeks treatment from a chiropractor. She believes that the treatment will improve her ability to farm and therefore queries whether she can claim a deduction for this in her accounts.

HMRC do recognise that taxpayers need to be in good health in order to carry on their trade, this allows them to earn an income on which they will pay their taxes. However HMRC’s approach to medical expenses typically follows that applied to costs incurred for food and clothes.

In this instance the farmer’s medical expense will not be tax deductible as the treatment will positively impact her personal life and therefore the expenditure cannot be wholly and exclusively incurred for business purposes.

If you require any further information please contact Green & Co Accountants.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Year End Tax Planning Tips For Companies

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Corporation tax is set to reduce to 19% with effect from 1 April 2017 but opportunities still remain to reduce and defer corporation tax liabilities. Here are some you may wish to consider.

MAXIMISE CAPITAL ALLOWANCE

The annual investment allowance (AIA) provides 100% tax relief for qualifying expenditure incurred up to a limit of £200,000 for 12 month periods starting on 1 January 2016. The allowance can only be claimed in the period in which the expenditure was incurred. You should be aware that cars are excluded from this relief.

If you have a 31 March year end, it would be sensible to review capital expenditure plans and consider bringing forward any purchase to before 31 March, thereby utilising this allowance which might otherwise be lost.

On the other hand, if the £200,000 limit has been exceeded, then further purchases should be delayed until after the year end, if possible.

PENSION CONTRIBUTIONS

Relief for employer contributions is given in the chargeable accounting period in which the contributions are paid. In most cases it is sensible to ensure that all contributions are paid before that date in order to accelerate the relief. In the context of a 31 March year-end, if the payments are made before 31 March, relief is given at 20%. This would reduce to 19% for contributions paid after this date.

DEFERRING INCOME OR PROFITS

Consider delaying a transaction to shift profits forward into the next financial year, so as to delay by one year any corporation tax payable. This will also have the effect of reducing the corporation tax payable from 20% to 19%.

There are several ways of deferring income to the next tax year. Sales could be pushed forward to the next period, selling goods on consignment, or if a seasonal trade, changing the year end to exclude a more profitable period or to include a loss-making one.

CLAIM RESEARCH & DEVELOPMENT TAX CREDITS

Companies that have undertaken research and development work could qualify for generous tax reliefs. For an SME, for every £1 of qualifying R & D expenditure, an additional £1.30 is allowed in the tax computation. A loss making SME may be able to surrender the loss arising as a result of the R & D claim for a cash credit of 14.5%

CLEAR OVERDRAWN LOAN ACCOUNTS

The tax charged on a company loan to a “participator” is equal to 32.5% of the amount of the loan outstanding at the year-end, unless the loan has been repaid or cleared within nine months of the end of the accounting period. Companies should therefore review outstanding loans and consider clearing them within the nine months to avoid the tax charge.

CONSIDER ROLL OVER RELIEF

Any company that has realised gains on the disposal of land and buildings used in a trade should consider whether the corporation tax on this can be deferred by way of business asset roll over relief. This may be available if the company reinvests all of the disposal proceeds in new qualifying assets, either within 12 months before the disposal or up to 3 years after. Partial relief could be available if all the proceeds are not reinvested.

For further information please contact the tax team at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Self Employed Landlords: What you need to know about Digital Accounting

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By 2020 most businesses, self-employed individuals and landlords will be required to use software or apps to keep their business records and to report their income and expenditure on a quarterly basis to HM Revenue & Customs. This new regime will commence on 6 April 2018 for most small businesses. Self-Assessment tax returns will no longer be completed from 2018/19 onwards.

What records will I need to keep?

HMRC will expect businesses to scan paper invoices and receipts into software using a smartphone camera. For many businesses it is expected that the scanned evidence of income and expenditure will be automatically processed by the software into the relevant accounting entries. HMRC prefers that the following data fields are completed for each receipt or expense item:

  • Invoice date and payment received date, if cash basis being used
  • Invoice value and payment received value, if cash basis being used
  • Income or expenses category, and
  • Deducted amount/percentage for expenses.

The above is the minimum required data which will be needed to enable software to identify and categorise each transaction.

Landlords

Landlords will need to provide the following:

  • The full address of each property
  • Income and expenses attributable to each property.

Quarterly Updates

The data of income and expenditure will have to be reported quarterly, although the reports will only be summary data. Businesses will be able to see an estimate each quarter of what their liability will be, based on the summary data provided.

End of year return

A final fifth submission will be made which will incorporate a correct and complete declaration. It is proposed that this final account will have to be submitted within 9 months of the end of a period of account.

The above is subject to a period of consultation due to end in November and final details are due to be announced in December. Green & Co will keep you informed as further details/changes are announced.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Research & Development Tax Credits: What could it be worth to your business?

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Many companies are apparently still not aware of Research & Development (R&D) Tax Credits or what it could be worth to their Business. Yet for companies who use them, R & D tax credits usually become an important part of their overall financial position.

So what is R & D expenditure?

It relates to money spent on a project which contains technical uncertainty e.g.,

  • Labour costs relating to management, development, technical analysis and developing manufacturing processes etc.,
  • Consumables – software licences, heating and lighting,
  • Supporting software.

R & D tax credits are tax breaks which work by reducing your profit and accordingly your corporation tax. The scheme is designed to help companies whether they are in profit or not. So if your company only makes a small profit, or none at all, it can still benefit by surrendering for cash some of the tax loss that has been created.

The relief for an SME can be as much as 230% of the eligible expenditure. Serious consideration should therefore be given as to whether your Company is eligible to claim this valuable relief.

So how do you know if you qualify?

If the project you have undertaken includes any element of technical uncertainty then it is worth investigating whether a claim can be made. Are there any elements of the project where you were not sure the component could be built to the required specification, or perhaps you were not sure what it would look like once built because it was evolving during the process?

Innovation – Has your project achieved something on a technical front that no other project has achieved? Cost – Have you spent a significant amount on, say, software development? If so, chances are there is an element of technical uncertainty in there.

There is no denying that this is a very complex area and that many businesses will not realise that the projects they are working on will contain an element which could qualify for R & D. Usually, the most expensive part of any project are the labour costs involved, which can be substantial. The tax savings being missed are therefore also substantial. Review your projects and get advice if there is even a small chance you feel it may qualify.

Green & Co specialise in R & D Tax Relief, if you would like to speak to one of our team, contact us on 01633 871122.

All Change To Incorporate Pay Rises

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“Britain deserves a pay rise.”

Those were the inspiring words of the Chancellor in his Summer Budget. But deserved or not, there are a lot of implications for British businesses this April, in order to initiate the new Living Wage for those aged 25 and over.

The wage hike to £7.20 is expected to affect over 6 million employees, with the average worker set to benefit to the tune of £900. However, many are worried that these spiralling costs will mean that employers may need to make redundancies.

With this in mind, the Chancellor has seen fit to amend several other items so as to help the average employer meet the rise in wages from next year.

For instance, Employment Allowance, allowing employers to reduce the amount of National Insurance they pay over, will rise from £2,000 to £3,000 per year from April, while at the same time  Corporation Tax will drop to 18%.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Serge Bertasius Photography at FreeDigitalPhotos.net

Welsh Town Declares Itself “Off-Shore”

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Local businesses in the Powys town of Crickhowell have united in submitting their own DIY tax plan to HMRC, stating that they intend to register the whole town as “off-shore”.

The move comes after locals became angry at loopholes in the tax legislation which allows big corporates like Amazon and Starbucks to pay relatively little or no UK Corporation Tax.  Having taken expert advice, they have come up with a legitimate tax avoidance scheme – but not because they don’t want to pay tax on their earnings.  They want to force the government to close up those loopholes so that business giants trading here in the UK pay their fair share too.

The town is a stronghold for small independent traders and, as a whole, they recently fought off a planning application by one of the big supermarkets to open up on their patch.  Their story was followed by a BBC film crew and broadcast earlier this week.

Crickhowell hopes that other towns in the UK will consider following suit and put further pressure on the Chancellor to address the issue.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Small Businesses Encouraged To Take Up R&D Relief

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More and more businesses are being encouraged to claim Research & Development (R&D) tax relief. Could you benefit?

The R&D tax relief encourages companies to invest in new product development and helps them by reducing the amount of corporation tax they have to pay to HMRC on their profits. Around 15,000 UK companies claimed the relief in 2013/14, up over 20% from the previous year, and is expected to show an increase again this year.

If you are a small or medium sized company, you may be able to benefit by way of a tax credit in the form of a cash lump sum paid by HMRC.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of samuiblue at FreeDigitalPhotos.net

Corporation Tax: Late Filing Penalties

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If you are the director of a limited company then you will be aware that you must submit a tax return to HMRC each year, declaring your personal income. The company, as a separate entity, must also submit a tax return and, much like a personal tax return, if the company return (CT600) is not submitted by the deadline, then penalties will be incurred.

The deadline for submitting the CT600 is 12 months after the company’s financial year ends. The corporation tax is due before the CT600 however, and should be paid within nine months and one day of the accounting year end.

If the CT600 is not submitted on time then an instant penalty of £100 will be incurred and, if the return is three months late, another penalty of £100 will be charged. In addition to these fixed penalties, if the CT600 is not submitted by six months past the deadline then HMRC can estimate the tax due and charge a penalty of 10% of that tax. Another 10% penalty will be incurred at 12 months late.

Ignoring penalty notices from HMRC will exacerbate the situation, so it is important to be aware of your company’s deadlines and adhere to them wherever possible.

For further information please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Tax Advantages For Innovative Companies

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New and innovative products which will change how we conduct our lives are being thought up, it can seem, every day. It is products like these which keep the majority of businesses profitable, which is extremely important for maintaining an already fragile economy in the UK.

HM Revenue & Customs tries to incentivise companies to conduct more research and development into advances in fields such as science or technology, where there is a scientific or technological uncertainty, by offering Research and Development (R&D) Relief. R&D Relief enables qualifying companies to reduce their Corporation Tax liability, or, in some circumstances, to receive a tax credit instead, by way of a cash sum paid by HMRC.

R&D Relief Schemes 

A company or organisation can only reclaim R&D Relief if it is liable to corporation tax. For small to medium-sized enterprises, the scheme for claiming relief is: The Small or Medium-sized Enterprise (SME) Scheme

SME Scheme – How much R&D Relief can you claim? 

The tax relief allowable on R&D costs is 225%. This means that for every £100 of qualifying costs, you could reduce your Corporation Tax profits by an additional £125 on top of the £100 spent.

What if I make losses?

If your company makes a loss for the period, this can be increased by the additional R&D Relief (an additional 125% of the costs for SME Scheme). You then choose to either carry forward the losses to offset against future profits, or convert it to tax credits.

R&D Tax Credits

George Osborne recently delivered promising news in this year’s budget for SMEs claiming R&D relief in the 2014/15 tax year. As of April 2014, companies claiming R&D tax credits under the SME Scheme will benefit from an increase in the rate to 14.5% compared with 11% in the last tax year.

Am I Eligible?

Companies in many sectors are eligible for R&D Relief. Green & Co are a proactive firm of accountants who can, and have, helped many businesses in identifying eligible criteria for successful R&D claims. If you are thinking of innovative ways to stay competitive in your sector, then you may benefit from speaking with us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Image courtesy of KROMKRATHOG at FreeDigitalPhotos.net