A neat summary of yesterday’s Autumn Statement relevant to owner-managed businesses

There was a surprising amount of content in yesterday’s Autumn Statement.

This is neatly summarised in a PDF file which can be opened by clicking on the link below.

Autumn Statement December 2014

If you need any further advice, please do not hesitate to contact us.

A thought for landlords to mitigate HMRC’s withdrawal of tax relief on some repairs

We have been having a lot of discussions internally about HMRC’s withdrawal of concession ESC B47. This means that (in an unfurnished rented property), there is no tax deduction available for the replacement of carpets and free standing white goods.

It makes sense, therefore, to  take out an accidental damage insurance policy for these sort of items. The cost of the insurance policy will be tax-deductible.

Other alternatives include – making the tenant responsible for replacements and considering furnishing (to HMRC’s definition) an existing unfurnished property thereby getting the wear and tear allowance.

Please feel free to contact us for further advice.

Am I a Subcontractor?

Question

I run a limited company and deliver electrical services. I recently did some work for another company and they deducted 20% tax! Is that correct? I’ve never had that happen before.

Answer

The Construction Industry Scheme (CIS) is a set of special rules for handling payments for construction work that contractors make to subcontractors. The scheme covers all construction work carried out in the UK, as well as some other related work. If your business is involved with construction operations then it might operate as a contractor or as a subcontractor- or as both.

Under the rules of CIS you’re a subcontractor if you agree to do construction work for a contractor. Subcontractors can be self-employed individuals, any type of business (such as sole traders, partnerships or limited companies), or other bodies and organisations.

It doesn’t matter how you complete the work – you could do it yourself, get your employees to do it, use your own subcontractors or make some other arrangement. And it also doesn’t matter if you don’t normally think of yourself as a subcontractor; you could still be treated as one under CIS.

So unfortunately, your customer (the contractor) may well have been correct to deduct tax from your invoice.

If you’d like to find about more about the Construction Industry Scheme and how it may be possible to receive your payments gross, please do not hesitate to contact us.

Nigel Lomax explains how the VAT Flat Rate scheme operates

The Flat Rate VAT scheme (FRS) is available to all small businesses. The FRS differs from standard VAT accounting as you pay a percentage of turnover rather than paying VAT on the difference between sales and purchases. So, while you continue to charge clients the standard 20% VAT rate, you can potentially give a smaller percentage to HM Revenue and Customs.

The FRS helps to simplify VAT calculations and record keeping. This is particularly helpful to smaller organisations that may not have the time to conduct their accounting in the traditional way. This is important bearing in mind the increasingly severe penalties that can be charged for errors. It shortens the process, removing the need to keep a record of VAT charged for each individual sale or that paid on purchases. However, you do still need to show a 20% VAT amount on each sales invoice.

It might also save you money. Example:

Standard VAT Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
VAT reclaimed through purchases £750 (this figure is arrived at by adding up the VAT on all your business costs)
Total payable to HMRC £9,250

With this scheme, you are acting as an unpaid tax-collector on the VAT generated by you business.

Flat Rate Scheme Calculation

Total Billings £50,000
Output VAT 20% £10,000
Total invoiced £60,000
Total payable to HMRC at 14.5% of total invoiced £8,700

In addition, while you are in your first year of vat registration you can benefit from a 1% reduction to your FRS rate.

If you make use of the scheme, you cannot reclaim VAT on purchases, except in certain circumstances. As a result, the FRS works best for people who have few expenses compared to their fee income. VAT on expenses can only be recovered if they are capital items costing £2,000 or more or if the assets are still within the business on the date of VAT registration.

I must credit http://www.contractoruk.com for their article which contains further information for IT Contractors

Please contact us if you need further advice. The FRS scheme means that it can make sense to voluntarily register to be VAT-Registered where your customers are VAT-registered.

Nigel Lomax from TaxAssist Accountants shares a useful client guide that explains the timing of income tax payments

Here in Shrewsbury, my team and I are often asked about income tax payments are calculated and, particularly, payments on account.

The link below will take you to our guide on this subject.

Client guide to timing of self-assessment tax payments

I hope you find this useful. Please feel free to share it with your friends (if they are interested in tax !)

The Pros and Cons of Going Limited

A high income tax bill for partners and sole traders is often the prompt to look at the pros and cons of becoming a Limited Company. The “bullet points” are shown here:
Limited_Company_Pros_and_Cons_Flyer

Please do not hesitate to contact us for more information and a calculation of the potential tax savings

Latest information on HMRC enquiries

TaxWise, who provide us with our fee protection insurance, have shared with me their latest statistics on HMRC enquiries. It makes dramatic reading. In the last 5 years, HMRC enquiries have increased 5 fold. You can see the information by clicking on the link below:

Claims by Month to TaxWise (July 2014)

Our clients are protected by the TaxWise scheme, which means that we will not charge our clients for time spent on HMRC enquiries (subject to some conditions).

If you are not a client, I strongly recommend that you consider getting some protection.