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BLOG ENTRY: Payments on Account

Sometimes you may notice that after you have completed your tax return and submitted by the 31st of January, HM Revenue and Customs (HMRC) may ask you to pay an amount of tax that it is much higher than you calculated.

If your tax bill for the year amounted to more than £1,000 you would be subject to pay payments on account. This is where HMRC estimate that you will be paying the same amount of tax next year and want you to pay it up front. This is normally done as half paid on the 31st of January with your current tax bill, which explains the higher amount of tax to pay and half on the following 31st of July with any remainder to be paid on the following 31st January.

For example, if you complete your April 2014 accounts and have £1,500 tax to pay, you will have to pay your £1,500 on the 31st of January 2015 along with £750 for the April 2015 tax year, making the total payment on the 31st of January £2,250. You would then pay £750 on the 31st of July, and if your tax bill for April 2015 is more than £1,500 you will pay the remainder on 31st of January 2016 along with the payment on account for the April 2016 tax year.

Luckily this system works both ways, if you in fact have to pay less tax than the previous year, the difference can be claimed back on your tax return so you know you won’t be overpaying any tax. In addition, if you know beforehand that your business is not doing as well as the previous year, you can apply to HMRC and have the payments on account reduced accordingly.

However, if at least 80% of your tax has been covered by tax deducted at source, such as from employed income or dividends, you will not have to worry about payments on account, even if your total tax bill is higher than £1,000.

If you would like assistance or have any questions regarding the above, please do not hesitate to contact us on 01761 252625 or at
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#HappyBirthdayYourMajesty We hope the #sunshine continues for the Queen's official #birthday celebrations! Have a great #weekend everyone! 😀 🎂 🎉
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BLOG ENTRY: Capital Gains Tax: The Basics

We’ve all had items we’ve no longer wanted, items we have sold to other people and possibly even made a profit. Normally nothing else needs to be done, but what about unusual cases such as expensive items, shares in a company or even a house?

The above examples could be liable for Capital Gains Tax (CGT). CGT is a tax on the profit, or gain made from when you sell or “dispose” of an item or asset. It doesn’t necessarily have to be sold to count as disposed for CGT; you can also exchange it for something else, receive compensation for it (such as it being damaged and you receive a payout), or even if you give or transfer it to someone else it could be liable for Capital Gains Tax.

For example, if you had a painting you bought for £2,000, then sold it for £13,000, you would pay tax on the £11,000 gain you have made. If there were any costs in selling the asset, such as auction expenses, you would be able to subtract this from the gain and reduce your CGT.

Just like with income tax, you have a personal allowance for CGT that is a tax free amount you can earn each year before you have to start paying tax. The amount for the tax year ending on the 5th of April 2016 is £11,100. This allowance counts for the total amount of gains from all sales that are liable to CGT, so the above example would not have any tax to pay, providing that it was the only asset sold.

This allowance is the same for everybody, which provides a handy way of reducing any taxable gains if you are married. Assets being transferred between spouses are exempt from CGT, which means if one spouse uses up their CGT personal allowance they can transfer assets to their spouse to use up their allowance as well, resulting in the pair doubling their CGT personal allowance. This is providing that the allowance hasn’t been used up on their own CGT liable gains.

CGT is also charged at different amounts depending which income tax rate band you are currently charged at. If you are in the 20%, or basic rate band, you will pay CGT at 18% and if you have already used up your 20% rate band then you would pay CGT at 28%.

Sometimes an asset is sold and you actually make a loss, when this happens you can set this loss off against any gains for the year, in much the same way as you would if you made a loss in a business.

If you do have CGT to pay, you will need to complete a self assessment tax return just like someone who has their own business.

Not all assets are liable to CGT, otherwise we would have to fill in a tax return and pay tax nearly every time we sold something. Common examples are everyday items where the proceeds from disposal are less than £6,000, cars and other assets expected to have a lifespan of less than 50 years and if you sell the house that you are living in.

If you make a loss on an exempt asset, you cannot claim the loss against gains for the year, the process unfortunately works both ways.

You can find more information about what is liable for CGT by clicking this link.

I will be covering the individual rules for selling houses, everyday items and shares in separate blogs. In the meantime if you feel you would like assistance or have any questions regarding the above, please do not hesitate to contact us on 01761 252625 or at
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BLOG ENTRY: Which Direction? Sole Trader or Limited Company?

One of the biggest questions that can hold up starting your own business is whether or not you should trade as an individual (sole trader) or a limited company.

In this blog I will be highlighting the differences between the two in order to help you decide which way is right for your business.

- A limited company is a separate entity

As a sole trader you directly earn the money from your business, your name is used on any purchase invoices and you are personally responsible if anything goes wrong.

Directly earning money is useful as you know that once you get paid the money is yours and you can spend it however you like. Any tax due has already been paid on your profits.

Being personally responsible for the business’ purchases and debts can also pose problems. If invoices become overdue or you fall victim to financial penalties, you could find yourself having personal belongings taken away to pay the debts.

By law a limited company is regarded as a separate person or entity which means any money made belongs to the company, as do any debts.

The upside being that if any action is taken to retrieve outstanding debts then your personal belongings would be untouched, with only company assets vulnerable to being seized.

The downside is that in order to have the money earned by the company available for personal use, you must draw it from the company which often results on you personally paying tax on it again after the company has paid its corporation tax on the profits.

- A limited company is complex

A sole trader just has to fill in the relevant pages on their income tax return each year. Sometimes they may produce a simple set of accounts to help see how well the business is going but the tax return is the only thing that needs filing.

A limited company is more complicated, in addition to a company or corporate tax return, a set of company accounts must be filed each year with Companies House, as well as being attached to the tax return. There is also an annual return that needs to be filed to Companies House which in addition to the time spent, will cost you £13 in administration fees.

If you draw money from the company in the form of dividends you will also need to file an income tax return each year to show this personal income. Alternatively you will need to set up a payroll – if you do not already have one – if you wish to pay yourself a wage.

This makes limited companies more difficult, time consuming and expensive to keep up with compliance and obligations for accounts and tax.

- Limited companies can help reduce tax

Unlike income tax for sole-traders, corporation tax for limited companies is always charged at 20%.

A sole trader pays 20% but only for taxable profits up to £31,785. After that the rate jumps to 40%, then to 45% once you reach £150,000 profit. You do get your £10,600 personal tax free allowance, but for larger profits it is clear that limited companies pay less tax.

As mentioned above, the profits leftover for a limited company are not technically yours but with some careful planning you can draw out a portion of profit to cover your basic tax rate band and leave any excess in the company to draw next year if things do not go so well. You can even draw it out at a rate lower than 20% if you use dividends.

There are also National Insurance Contributions (NIC) to take into account, as a sole trader must pay these on top of income tax at a rate of 9%. A limited company does not have to pay any NIC’s which cuts out roughly a third of tax due.

- Financial year ends

Another difference is the year end of your business. Sole traders complete tax returns up to the 5th of April each year, so your financial year end would usually be on the 5th of April, or if it is on a different date, you still complete your tax return for the 5th of April following your year end.

The deadline for this to be completed is the 31st of January regardless of your financial year end. Any tax due needs to be paid on this date and if you have more than £1,000 tax to pay, you will have to pay the next year’s tax in instalments in the following year.

In addition, regardless of when you start, your first tax return has to be up to the next 5th of April, with your second tax return being for your financial year up to your year end. This results in a portion of your first financial year being double counted and you could pay extra tax. This tax can be reclaimed when your business ceases, but until then you have an amount of money that you cannot access which is never a good thing in a business.

For a limited company, your financial year end is the period you need to complete your tax return and accounts to, with accounts due to be filed with Companies House within nine months. Tax due must also be paid on this date, however the tax return can wait twelve months before being filed. So when you decide your financial year end for a limited company, you need to make sure you are aware of your annual deadlines.

- A limited company’s name is protected

When you register a limited company, the name becomes protected preventing anyone else from using it. They may have a similar name or trading name but the official name will belong to your company as recognised by Companies House.

As a sole trader you can have a trading name, but this is not protected. To avoid someone else using the name you may have to copy-write it or seek legal advice, both of which can be costly.

- Is it really set in stone to be one or the other?

The best thing about making a decision like this is that it isn’t a case of should your business be a limited company or sole trader, but more about which one is right for your business now.

It is common practice to start up a sole trader business and when the business grows, form a limited company to take over the assets and enjoy the tax benefits, while being reassured that you are making enough money to pay for the additional complexities.

In the same way a limited company that has been shrinking could wrap up and the owner can register a self-employed business until funds are at a level where he can afford to be a limited company again.

There are two ways to wrap up a limited company, the first is to dissolve the company, making it cease to exist. There is usually an administration charge of £10 made payable to Companies House to do this. You must be sure to transfer the assets from the business before you do this, (making sure this is done through official channels) because any funds remaining upon dissolution of the company will be frozen and become property of the crown.

The alternative method is to make the company dormant, this means the company still exists but is not trading. This is useful because you can reactivate the company at any time, retaining the company name which would still belong to the company during its dormant state. The only downside is that annual returns will still need to be completed for Companies House along with a simplified set of accounts known as dormant accounts. While dormant, a company will not have to file tax returns.

We are able to sit down with you and discuss these points if you feel you would like an outside opinion or more advice to help you come to a decision that will benefit you and your business.

If you need any further advice or assistance with the above, please do not hesitate to contact us on 01761 252625 or at
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We've been so busy we forgot to mention that Short Accountancy LTD became two years old in May!
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BLOG ENTRY: Employee or Subcontractor?

If you run your own business and become really busy, or if there is a piece of work you cannot do yourself, often another individual who works in the same or a similar trade would be hired to help out, known as a subcontractor. This isn’t the same as taking on an employee and overall there would be less tax and National Insurance Contributions (NIC) to be paid, as well as less paperwork and information to be submitted to HM Revenue and Customs (HMRC).

Since both employing someone and hiring a subcontractor are quite similar, HMRC will try to prove that you are employing the other individual rather than subcontracting out work. This is because having an employee means you will need to pay more tax. Should HMRC decide to investigate, it could become expensive, both in additional tax to be paid if you lose the case and in professional fees to defend yourself.

The best defence you can have is understanding the key differences between having an employee and hiring a subcontractor to help you. We’ve listed the differences below, allowing you to use them to ensure you can prove you have a subcontractor and not an employee without too much effort or cost.

- How do they work with you?

Does your subcontractor bring their own tools? Do they decide their own hours and is there a set fee? If you decide when they work and provide their tools it will be shown that they are an employee. However if you answer yes to the above two points, then you can be safe knowing that this counts as subcontractor behaviour. Having a set deadline and standard of quality doesn’t imply an employer / employee relationship, so you can still include these in a contract.

- How many clients do they have?

If your subcontractor does work for several clients, that will help convince HMRC that they are a subcontractor. If they only work for you it makes them look more like an employee.

- Are they responsible for their actions?

If you are an employer your business insurance will cover the actions of your employees, whom you would be responsible for. However with a subcontractor, even though you would be responsible to the client, the subcontractor will have their own insurance. You will need to make sure any insurance owned by the subcontractor is clarified in your contract with them, as well as any confidentiality agreements.

- Does the contract look like an employment contract?

Naturally when drafting up the contract with the subcontractor you will want to avoid using any terms that suggest employment, such as salary. In addition it needs to be clear that even though you are hiring that subcontractor, they are able to send a substitute in their place if needed, something an employee cannot do.

If you follow the above points then should HMRC come round and question whether or not the person doing work for you is a subcontractor or employee, you will be able to show that they are a subcontractor quickly and avoid any penalties. If it turns out that following this guide shows you have an employee, you can at least follow the steps to make the employment official and avoid any penalties before HMRC decide to investigate.

The above works both ways; if you are self-employed and do subcontractor work for a larger company, it would be useful to be mindful of the above so your own business is not disrupted by an investigation into the larger company you work for.

If you need any further advice or assistance with the above, please do not hesitate to contact us on 01761 252625 or at
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BLOG ENTRY: Real Time Information

Since October 2013 Real Time Information (RTI) filing of payroll has been mandatory for all employers. This change is one of the more significant made by HM Revenue and Customs (HMRC) since before payroll information was filed only once per year using an end of year employers summary (P35).

HMRC use RTI to help calculate any changes needed to benefits claimed that are tied to your income throughout the year. It also helps notice any discrepancies such as having the wrong tax code so you don’t have a large amount of overpaid or underpaid tax at the end of the year.

This does mean more work for the employer however, who is required to file a Full Payment Submission (FPS) on every pay date whether it is weekly, fortnightly or monthly. There are no penalties in place yet, but failure to comply would result in HMRC pursuing amounts they think would be due even if no employees were paid in a month. There will however be penalties for late filing in place from the 6th October 2014.

There are also no separate submissions for hiring new employees or when an employee leaves. You just enter their details with a start or leaving date and they get updated with HMRC on the next FPS.

In addition to FPS there are Employer Payment Summaries (EPS) which keep track of the employer’s side of payroll. This will mainly be statutory payments such as sick pay or maternity pay. You will also have to file an EPS instead of a FPS when you do not pay any employees for a pay period. Unlike FPS submissions, EPS submissions are made monthly and are not affected by the frequency you pay your employees.

HMRC do have a simple system you can use for filing your submissions or you can use a payroll software that has RTI filing capabilities, but make sure you understand the software you are using so no mistakes are made; correcting previously filed submissions could result in penalties.

We offer payroll services that include RTI filing so we can handle the regular task of filing your submissions every week or every month. If you need any further advice or assistance with the above, please do not hesitate to contact us on 01761 252625 or at
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BLOG ENTRY: Registering for VAT

It’s always great to see that your business is growing and your turnover for each year is increasing. You must be careful however, once the total turnover over a period of twelve months reaches £82,000 you will need to register for VAT. You’ll also need to take into account that the twelve month period does not necessarily mean your accounting year, so it helps when you are nearing the £82,000 threshold to keep a running twelve month total of turnover.

Once registered you will notice some changes to how you run your business. Most notably is that you will likely have to add 20% onto all of your invoices. This can be problematic as the increase of price will affect any non-VAT registered customers such as individuals without a business. You will also have to start completing VAT returns every three months (or quarter) and pay this extra 20% you are charging to HM Revenue and Customs.

There is one small relief, in that any goods you purchase for the business that have VAT charged on them will allow you to claim back or set off the VAT against the amount that you need to pay HM Revenue and Customs.

Registration is mandatory, failure to comply will be met with a penalty and if you fail to complete and pay the VAT return on time you will also face penalties and additional charges.

There are a few steps you can take to help organise and prepare yourself for VAT. For example on your bookkeeping records you can separate the VAT from purchases and sales to make the figures you need for VAT returns easy to find. It also helps to set aside an amount of money to cover the VAT amount due to be paid to HM Revenue and Customs. Finally you could send a letter to customers giving them a heads up about the price increase before they receive their next (more expensive) invoice.

Be sure to keep an eye on your twelve month running total for turnover because if your turnover falls below £80,000 you can de-register from VAT. If your turnover seems to fluctuate around the thresholds it may help to seek advice on how to proceed, or stay registered to avoid the chance of a penalty.

The thresholds of registering and de-registering for VAT have been on the rise for the last few years, so be sure to double-check the current thresholds by clicking here before you work out whether or not you should be registered.

We also offer a service to file VAT returns on your behalf if you give us the figures required, or we will be happy to sit down with you and discuss in more detail how you can account for VAT and how to save you the most time and money.

If you need any further advice or assistance with the above, please do not hesitate to contact us on 01761 252625 or at
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We are happy to announce that we are now registered on Wave Apps! Check out their free bookkeeping software!
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BLOG ENTRY: Employing Your Spouse

If you have your own company or self-employed business and have a spouse/civil partner who does not generate any income, there may be some financial benefit to employing them to work for you.

You can do this by adding them to your payroll if you have one and paying them enough money to cover their income tax personal allowance. This is a tax free income and can be set off against the business profits as an expense.

Another advantage of doing this is that there will be a small amount of Class 1 National Insurance Contributions (NICs) for the spouse/civil partner to pay which will go towards their state pension and other benefits that can be claimed from the government. You can find which benefits are dependant on Class 1 NICs by clicking here.

If you do decide to go through with the above, it is not enough to only add them to the payroll, you will need to show that they are actually working for you which can be done with some minor secretarial or admin work. If you have a limited company you can make them a company secretary to provide additional evidence.

With limited companies you can take this a step further by making your spouse/civil partner into a joint director of the business allowing income drawn by the company to be shared by your personal allowances and tax rate bands. This can effectively double the amount of income you can draw at a lower rate of tax depending on how you split the company’s shares.

Be aware that this also means you are giving your spouse/civil partner a portion of your company. In addition you will need the relevant documentation to make things official rather than just saying they have joint ownership.

If you need any further advice or assistance with the above, please do not hesitate to contact us on 01761 252625 or at
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