The Shrewsbury Accountants Blog – Taxassist Accountants in Sundorne

April 14, 2011

An interesting question about year-end PAYE filing requirements for low paid employees answered by Nigel Lomax of TaxAssist Accountants

Filed under: accounting, payroll, shropshire, small business — Tags: , , , , , , , , , , , , , — taxassistshrewsbury @ 2:45 pm

Q: I want to take on my first member of staff for 16 hours a week and I’ll pay her the minimum wage for now. What requirements do I have for the collection of tax and national insurance etc, and what do I need to file with HMRC?

A: Unless employees provide you with a P45 from a previous employment, you should always get them to complete HMRC form P46. However, assuming she indicates this is her only job since 6 April on the P46 (box A), you needn’t submit this to HMRC because she will be earning below the Lower Earnings Level (LEL), which for 2011/12 is £102 per week. You can simply file it away until her earnings exceed this level.

Again on the assumption that she ticked box A, you will not need to calculate any tax or national insurance because her earnings do not exceed either of the thresholds. So unless her earnings exceed the LEL, you can simply pay her gross pay.

You will not need to complete the annual forms P14, P60 or P35 either because her earnings were below the LEL. So you have no requirements to file anything with HMRC or provide anything to your employee.

On a practical note though, it sounds like your employee may be claiming tax credits and therefore, she may want you to fill out a P60 for her so that she has evidence of her earnings.

If you would like any further assistance with this or any other matter, please feel free to me.

April 12, 2011

A new opportunity to reduce tax through capital allowances is explained by Nigel Lomax of TaxAssist Accountants

Filed under: accounting, budget 2011, corporation tax, limited company, shropshire, small business, tax — Tags: , , , , , , , , , , — taxassistshrewsbury @ 12:07 pm

Buried in the recent budget was a tax-saving opportunity using the short-life asset election for capital allowances. It will become very relevant when the Annual Investment Allowances is dramatically reduced in 2012/13.

For the 2011/12 tax year, businesses can claim 100% capital allowances on all capital expenditure up to £100,000 (Annual Investment Allowance). This will be sufficient for most owner-managed businesses.

However, for 2012/13, the Annual Investment Allowance (AIA) is reduced to £25,000. Any capital expenditure in excess of this will receive a writing down allowance  of 20% per annum.

So, lets say you buy a new computer system for £10,000 in June, 2012 (and you have already used up your £25,000 AIA for that year), then over the next 5 years you get a total of £6,723 capital allowances to reduce your taxable profit. You then scrap the computer and buy another one. Capital allowances continue to be claimed on the original expenditure  but these become smaller and smaller annual deductions. It takes a further 12 years before you have been able to reclaim 95% of the asset cost against taxable profits.

The Chancellor announced that the cut-off period for short-life assets (SLA) will be extended to eight years thus making the election more attractive for a wider category of assets.  The measure takes effect for expenditure incurred by companies on or after 1 April 2011 and 6 April for unincorporated businesses. Cars cannot be treated as short-life assets (unfortunately).

In our example above, if an election had been properly filed with HM Revenue and Customs that the computer was a SLA, then on disposal it would have been possible to claim a “balancing allowance” of £3,277 in year 5.

This is a complicated area. You should assure yourself that your accountant is aware of this opportunity so that you do not lose out. Of course, we would be delighted to help.

 

April 11, 2011

A summary of the 2011 Budget by Nigel Lomax of TaxAssist Accountants in Shrewsbury

Filed under: accounting, budget 2011, shropshire, small business, tax — Tags: , , , , , , , , , , — taxassistshrewsbury @ 1:37 pm

Here is a link to our summary of the 2011 budget

http://www.taxassist.co.uk/support/upload_file/budget/TaxAssistBudgetSummary2011.pdf

We hope you find it useful. The main changes affecting owner-managed businesses and personal tax-payers for 2011/12 were:

  • The reduction of the small business rate of Corporation Tax to 20%.
  • £1,000 increase in income tax personal allowance to £7,475 (but higher-rate income tax becomes payable at lower earnings). A very minor increase for people aged 65 plus.
  • 1% increase in employees and employers National Insurance (NI). Lower-paid employees are protected by significant increase in the employee’s earnings threshold (employees do not pay NI on first £139 per week – an increase of £28 per week).
  • Encouragement of an entrepreneurial culture by increasing Entrepreneurs Relief and improving the Enterprise Investment Scheme

An interesting VAT question answered by Nigel Lomax of TaxAssist Accountants in Shrewsbury

Filed under: accounting, shropshire, start-up, VAT — Tags: , , , , , , , , — taxassistshrewsbury @ 12:15 pm

Here is an interesting recent question:

Q: I am about to complete my VAT return for the quarter ended 31 March, and I fear that my turnover has crept to over £1.35m- which is the threshold for cash accounting for VAT. Despite best efforts, my customers are taking longer and longer to pay, so the VAT on my debtors is about £40k on average.

If I have to pay the VAT liability on an accruals basis, the bank account would exceed its overdraft limit and I’ve only just had a review so I don’t think we’d get an extension. Is there anything we can do?

A: When you leave the cash accounting scheme, you may choose either to:

  • account for all your outstanding VAT due in the period in which you stop using the scheme. This may be simpler but could have a serious effect on your cash flow if the amounts of the VAT on your debtors is high
  • or opt for a further six months in which to account for the outstanding VAT.

Please note that you cannot opt for a further six months in which to account for the outstanding VAT if:

  • HMRC has withdrawn use of the scheme from you, or
  • the value of your taxable supplies has exceeded £1,600,000 and the value of your supplies made in the previous three months totalled more than £1,350,000

 

Be careful about tax on company loans advises Nigel Lomax of TaxAssist Accountants in Shrewsbury

Filed under: accounting, corporation tax, limited company, shropshire — Tags: , , , , , , , — taxassistshrewsbury @ 11:23 am

In today’s difficult times, shareholders in owner-managed companies need to be careful to avoid a 25% tax charge on an over-drawn Director’s loan account. Where a company is not able to pay a dividend (due to insufficient profits) and the Directors do not want to incur income tax and national insurance on a salary, the only option is for the amount withdrawn to be treated as a loan by the company to the shareholder.  If this loan is not cleared within 9 months of the year-end, the company has to pay 25% of the loan as S419 Corporation Tax.

We have seen examples of banks lending money to companies who immediately pay it (as a loan) to the shareholders. A better option would have been for the banks to lend directly to the shareholders, completely avoiding this charge.

We have a great deal of experience of helping companies in this situation and would be happy to advise

 

 

April 8, 2011

HMRC introduce tough new late-filing penalties warns Nigel Lomax of TaxAssist in Shrewsbury

Filed under: accounting, shropshire, small business, tax, tax administration — Tags: , , , , , , , , — taxassistshrewsbury @ 10:17 am

By now, self-assessment tax payers will have received details of the new HMRC late filing and late payment penalties.

The most dramatic changes are to late-filing penalties.

The £100 penalty for a late return will be retained, but whereas it was capped depending on how much tax was unpaid at January 31 (so that if you owed nothing you couldn’t be fined anything), now the penalty will be automatic and in full.

The penalties for late filing increase the longer you leave it. For the tax year 2010-11, the penalties are as follow:

  • A daily penalty of £10 for returns which are over three months late – this can run for a maximum of 90 days.
  • An additional £300 – or five per cent of the tax due if this is higher – for returns over six months late.
  • A further £300 – or a further five per cent of the tax due if this is higher – for returns over twelve months late.
  • A higher penalty of 70% of the tax due will be charged if a return has not been submitted for more than twelve months and information has been deliberately withheld which HMRC requires to properly assess the tax owed.
  • This penalty increases to 100% of the tax due  if HMRC deems that information has been deliberately concealed from them.

So if a taxpayer (who has no tax to pay) is 12 months late filing a tax return, he will now face a fine of £1,600. In the past, there would have been no late-filing penalties (as there was no tax to pay).

This looks as though it will be a significant revenue earner for HMRC. It is a very high penalty and will hit low-earners disproportionately hard. I think this will become a major news story once the 31st October paper filing deadline has passed.

Thanks to http://www.freelanceadvisor.co.uk for their succinct presentation of the late filing penalties.

 

 

April 1, 2011

How to calculate VAT in mileage payments explains Nigel Lomax of TaxAssist Shrewsbury

Filed under: accounting, shropshire, small business, tax, VAT — Tags: , , , , , , , , — taxassistshrewsbury @ 4:26 pm

If you pay your employees to use their own cars on company business and your business is VAT-registered, then you can claim the VAT back on the fuel element of the mileage payment. You should ask your employees to provide VAT receipts with their expense claims.

We are often asked for the calculation. So here it is.

Firstly, you need to go to the web-site below to get the HMRC approved ” advisory fuel rates”. The latest rates are shown below:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The rate for a 2000cc diesel car is 13p per mile. This rate includes VAT (at 20%). So for every mile that your employee covers in a 2000cc diesel car, it is possible to reclaim VAT of 2.16p (13p divided by the VAT fraction of 6).

We hope this explanation is clear and useful.

 

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