On Monday this week (29th October 2018) the Chancellor, Philip Hammond, held a budget.
Most of what is announced in a budget is considered by laypeople to be irrelevant so here I want to summarise the points that may actually make a difference to you and me.
The personal allowance for 2019/2020 will be £12,500 meaning that is how much a person can earn before paying even a single penny in tax.
Previously proposed reforms around national insurance contributions have been put on hold until at least April 2020.
The current VAT registration threshold is £85,000 and this will stay as is until April 2022. This is not in line with speculation in the financial services that the threshold would be lowered to make more businesses compy with MTD (Making Tax Digital) earlier.
Fuel duty is to be frozen for the ninth consecutive year.
For the Income Tax Rates and Allowances that will apply from April 2019 please see our Tools and Calculators page.
What is Making Tax Digital?
An HMRC initiative for the UK tax system and ultimately bring an end to Self – Assessment. MTD is a Tax Revolution in the UK. The MTD’s aim is primarily to make Tax administration, a fully digitalized tax system by 2020. Its primary objective is to make the tax system “Effective, Efficient and Easier”. The Secondary objective is to make MTD as a Cost Cutting measure, and finally to cut down the overheads for HMRC for managing Tax affairs. MTD would bring changes in the tax system which will apply to a wide range of taxpayers, including most businesses, self-employed professionals, and landlords. Here comes the challenge where the businesses would now get their records to be digitized and further it requires a Cloud Integration.
Making Tax Digital timeline:
From April 2019, quarterly reporting is:
- Mandatory for VAT for all registered businesses with a turnover above the VAT registration threshold (£85,000 per annum)
- Optional for VAT – registered businesses with a turnover below the VAT registration threshold
From April 2020, quarterly reporting is:
- Mandatory of income tax and corporate tax (as appropriate) for all businesses (including landlords) with a turnover over the VAT registration threshold (£85,000)
Three Steps to going Digital:
1. Digital Records
- Storing all Transactions in electronic form
- Cloud Accounting
- AR and AP data stored in electronic format
2. Digital Link
- A Digital Link is an electronic or Digital transfer or exchange of data between software programs, products or applications. The use of ‘Cut and Paste’ does not constitute a digital link
- VAT account – Audit Trial
- No Human intervention
3. Digital Submission:
- Access to Digital Tax Account which should provide a live view of all the information
- Submit your return digitally made using appropriate software with a digital link
- Receive Communications from HMRC digitally
Get ready for MTD:
Three Steps for making your Organization ready for MTD
- Impact Assessment
- Deciding your approach
Role of Cloud accounting in MTD:
As MTD is a digital revolution by HMRC, where the tax records are digitized, it comes as a challenge to keep the accounting records digital and can be accessed anywhere and everywhere. So here comes the space for “Cloud Accounting”.
Why Cloud Accounting?
- Anywhere and everywhere access
- Cost Cutting measure for business
- Multiple User access
- Risk-free Recovery
- Higher efficiency
Easy and Fast Integration
MTD for VAT:
Digital Link – Source Data:
It is widely recognized that a VAT Group return is generally consolidated from several sources of data, MTD is not regulating the internal processes of how this is achieved. The flow of data being processed when arriving at the consolidated return. However should be digital, not withstanding any adjustments.
Software to be used:
HMRC does not approve any software. However it is working with various vendors like DataTracks, Xero, Quickbooks to test various software solutions to send the VAT through their Application Program Interface (API).
Spread Sheets and their place:
Spreadsheets can be used to record data, however, if you have several spreadsheets these must be digitally linked together. There must be no manual transfer or rekey of information from one to another.
They can also be used to create calculations that might be seen in a normal VAT return. These calculations must be kept and referenced to create an audit trail.
Spread Sheets will not be able to file directly into HMRC, so alternative or additional software must be used. All these aspects make it critical that all business entities will be required to move into a software for processing their transactions and filing the returns in a smooth way.
Some of the challenges while recording the transactions in a software:
- Ability to understand all the features of the software to ensure quick and easy recording
- An understanding of the controls available in the software to reduce errors in posting, duplication of records or missing out to record any particular transaction
- A clear knowledge to ensure that all transactions relating to a particular VAT or a Tax period are properly captured in the return for that period
- An understanding of the methods to correct such instances where the transactions are either not captured during that period or captured in one period earlier though the transactions relate to a subsequent period
- A good understanding of the automation capabilities such that the transactions are captured in a speedy and less time-consuming manner as well as using special features like updates through bank feeds
- Digitally interlinking the various records between organizations for invoices, payment advises, etc., to ensure that minimal manual intervention takes place to forward the invoices and payments
A good understanding of all these features would enable a Company to maintain their books of accounts in a top-notch condition besides ensuring they get a good overview of their operational performance with timely Management Information System and Dashboards on performance.
Credit to Taurus Quest www.taurusquest.com
Starting up a new business, especially for the first time, is often both daunting and exciting in equal measure. You have to wear many hats as a business owner and often you will need to raise capital of some kind in order to kick-start your venture.
At Tower we have seen and supported many applications for funding and in order to help others when starting out and ensure a greater chance of success, we have compiled some tips and pointers to help along your journey.
A business plan is essential, if you don’t have a plan, you just have an idea or a dream. No matter how good that idea is, unless you have a firm plan, ideally covering at least the first 12 months, you will struggle for any potential lenders/investors to take you seriously.
There are plenty of templates available online and good resources available if you don’t know where to begin with writing one. It’s sensible to review and update your plan every year as your goals and targets change.
They do not need to be set in stone, however forecasting on a regular basis is important so you can stay on top of your cash flow. Cash flow really is king so it’s essential that you try and plan for any peaks or troughs, not only that but this will help you demonstrate affordability for the finance you seek.
Personal Credit Profile:-
A new business naturally has no trading history or financials, which is why it’s generally harder to find funding support. As a result, there is an increased focus on your credit history as well as any co-directors or partners that you have.
It’s imperative that you review your credit history if you haven’t already, there are plenty of free ways to do this, and do so once a month as it’s updated. It’s a great way to track when and who is credit searching you (permission is always required to do so) and what information is available to them.
Being on the Electoral roll, keeping up with your commitments (credit cards, mortgage etc.) and limiting the number of searches conducted, can all potentially help when you apply for funding in the future.
Personal Bank Statements:-
Similar to the above – make sure that all is in order as best you can. Missed or returned direct debt payments are frowned upon and you need to avoid these where possible. Most finance companies will want to review your personal bank statement history for the previous 3 months.
How much capital do you require and what for:-
It might sound obvious, but you need to have a precise picture in terms of how much funding you need and what it will be used for. Broad numbers will not be ideal, be specific as possible and explain how you are going to use the money, over what time frame and how it will impact the business.
All in all, you need to be prepared and willing to put the ground work in before you approach anyone for finance. It will save a lot of time in the long-run and make any progress much smoother.
We have the expertise and the willingness to help guide you through the whole process, from start to finish and beyond.
Tower Leasing Limited
When a business is purchasing an asset, for example a motor vehicle or piece of machinery, what are the things to consider when deciding to fund the purchase by leasing or hire purchase?
This is a question we are often asked but the answer depends largely on the business, their cash flow and their long term needs.
The most basic difference between leasing and hire purchase is that at the end of a hire purchase agreement the business becomes the legal owner of the asset (hence “purchase” in the name). At the end of a lease the title (or ownership) remains with the leasing funder.
Depreciation of a hire-purchase financed asset is written into the financial records of the business as the business will be the ultimate owner of the asset. A leased asset cannot be depreciated through the business as the business will never own the asset.
A lease can have an element of maintenance written into it. An asset financed by hire purchase must be maintained by the business, not the funder.
For both leasing and hire purchase, payments need to be made at regular intervals (normally monthly) to the funder.
Which is best?
Leasing is fairly flexible and allows the business to use the asset while it has useful life, but hand it back without having to worry about disposing of it in another way.
Hire purchase means that at the end of the agreement period the business owns the asset in full and can do what it likes with it.
This is in no way an exhaustive guide but aims to give the basics of hire purchase vs leasing.
Use a Professional
A few weeks ago the fan in my central heating unit started to make a funny noise. Did I fix it myself with the aid of Google and a household toolbox? No, of course, I didn’t. I called in an expert who fixed it in a matter of minutes.
I firmly believe that we should outsource jobs to those who are experts in them. I am no plumber and don’t attempt to be.
Likewise with the finance function of a small business. The business owner may feel that they can’t afford to outsource the bookkeeping, credit control, VAT returns, payroll etc to a professional. Surely their time is too valuable to spend doing these tasks that can easily be carried out elsewhere. Although small business owners have to have at least some financial knowledge, the chances of them being fully up to date on current HMRC regulations are slim at best. I know this because I have to be up to date with them and this takes more time in Continuing Professional Development than I would really like. A typical sole trader will not have the time to read the HMRC website for fun and may only dip into it when there is a problem or a question they need to be answered.
As a practising member of the Institute of Certified Bookkeepers, I am obliged to stay up to date with the rules and regulations issued by HMRC and Companies House. I am regulated and supervised by the ICB and so have knowledge and skills that no sole trader would need nor want.
What is bookkeeping?
Bookkeeping, rather than accountancy, is the day to day record keeping legally required by any business. It is a necessity to keep account of your sales and purchases in order to report to HMRC and Companies House. Your taxes need to be calculated correctly so that you pay the right amount at the right time.
But bookkeeping is far more than simply entering the data given. A good bookkeeper can provide you with regular reports on the financial health of your business. We compare the performance to prior periods, and highlight where changes should be made. For example, one client of mine had 8 direct debits going out of the bank account for insurance. Two policies were doubled up and she was paying way over the odds on the rest of them having just let them automatically renew each year. By producing management reports we realised that her insurance costs were way higher than they should have been and managed to cut the amount paid each month by two-thirds.
There are many examples of where bookkeepers can help businesses to save money. Monitoring costs is a part of the services that we offer to all of our clients. It may be tricky to monitor yourself during the busy day-to-day bustle of actually running your business, after all, running your business is why you’re in business at all!
Let’s say you’re a reflexologist. You work appointments 40 hours per week and record those appointments and your income from them in a diary. Come to the end of the tax year, how do you translate that into a correctly calculated tax return? Obviously, you start by adding up your income from your appointments. Then comes the tricky business of working out the costs. Perhaps you’re mobile so you can claim for some motor expenses. Or maybe you rent a room in a salon. Perhaps you pay for some things in cash, debit card, or credit card so how do you keep track?
So the costs aren’t simply a case of looking at what’s come out of your bank. You make and receive business calls on your personal mobile phone. How to account for that? All costs that relate wholly to your business can be claimed back. A qualified and regulated bookkeeper will ensure that you are claiming back the correct expenses.
Because of our knowledge of claimable expenses, you could end up paying less tax.
You started your business because you wanted to run it, not to spend time on the record keeping. All of the finance tasks can be outsourced to people who can perform them quickly and accurately.
To any self employed person, HMRC payments on account are illogical and confusing. Here we will clarify how the system works and how to remain compliant with HMRC’s odd rules!
In a nutshell, this is a basic tax calculation:
Taxable income £xxxxxx
Less tax free personal allowance £xxxxx
Tax on income at xx% £xxxxx
Tax payable for the year in question £xxxx
But where it becomes more complex is if your total tax liability for one year is more than £1,000. HMRC will assume that your income for the coming year will be equivalent to the year just calculated. Therefore you need to pay one half of the total liability in advance! This is HMRC payment in advance. Let’s give a practical example or two…
Jane Doe earns £20,000 of profit from self employment. Taking off her personal allowance of £11,000 leaves her tax payable on £9000 at 20%, being £1800. Assuming this is her first year of trading the amount she must pay in the January following the end of the tax year is the £1800 PLUS another £900. Then in the following July she must pay another £900. This means that if her tax bill for the next year is also £1800 she will have paid it already, but will then need to pay two lots of £900 for the NEXT tax year in the following January and July.
Joe Bloggs earns £13,000 of profit from self-employment. Taking off his personal allowance of £11,000 leaves £2,000 on which tax at 20% is £400. This £400 must be paid to HMRC in the January following the end of the tax year. Because his tax liability is under £1,000 there are no payments on account to be paid. If his income remains static for the following year this will remain the case, however if his income rises so that his total liability is over £1,000 he will need to pay the total liability for the past year but also half the assumed liability for the next tax year.
For a self-employed person it can be a shock to realise that they have half as much again to pay as they thought and that’s before we mention National Insurance (both Class 2 and Class 4).
For professional advice please contact an expert!
VAT is an often misunderstood tax and clients often ask questions about it. Hopefully this post will dispel some of the myths and make clear how it works.
What is VAT?
VAT is Value Added Tax. It is a tax that’s charged on most goods and services that registered businesses provide in the UK.
For the purposes of this post we won’t explore the complexities when trading outside of the UK but we are happy to advise on this if you use the Contact Us link.
Who charges VAT?
VAT can only be charged by a registered business. A registered business is an individual, a partnership, a company, club, association or charity.
If your turnover is below the threshold then you do not have to register but you can voluntarily decide to register if it is to the benefit of your business. Once your turnover is over the threshold (currently £85,000 per year) you must register.
How much is VAT?
There are three rates:
- standard – 20%
- reduced – 5%
- zero – 0%
Goods and services charged at a standard, reduced or zero rate are ‘taxable supplies’. Even though a zero rated item doesn’t have VAT charged on it it is still a taxable supply at a rate of zero.
Most goods are standard rates. The reduced rate applies to children’s car seats, domestic supplies of fuel and power and products to help with quitting smoking.
A zero rate is applied to most basic food items, books and magazines, children’s clothing and shoes, and travel by public transport.
Rates on different goods and services – GOV.UK
– via www.hmrc.gov.uk
You charge your customers at the correct rate for the goods or services you provide. There are some goods and services where you cannot charge VAT. These may be exempt or outside the scope. These are not ‘taxable supplies’. These include items such as insurance, bank charges and postage stamps.
How does VAT work?
The VAT you charge your customers on your sales is your ‘output tax’.
The VAT you have paid on your purchases and expenses to make your taxable supplies is your ‘input tax’.
Take away your input tax from your output tax. You then either send a payment to HMRC or claim a repayment from HMRC.
Output tax £1,500 – Input tax £1,000 – Pay £500 to HMRC
Output tax £1,000 – Input tax £1,500 – Claim £500 from HMRC
To help you remember which is output and input tax consider how the goods are moving. Sales go out of your business and purchases come into your business. Therefore sales incur output tax and purchases incur input tax.
What is my taxable turnover?
VAT taxable turnover is the total value of everything you sell that isn’t exempt from or outside the scope of VAT.
If all of your goods and services are exempt, you will not be allowed to register.
Calculate taxable turnover – GOV.UK
– via www.hmrc.gov.uk
When must you register?
You will need to register if, at the end of a calendar month, your taxable turnover has gone over the registration threshold during the previous 12 months or less.
You should also register if you expect your taxable turnover, in the next 30 days alone, to go over the registration threshold.
Register within 30 days of going over or expecting to go over the threshold. If you don’t register on time, you’ll still need to pay the VAT due from when you should have registered. HMRC may also charge you a penalty. Don’t let this happen to you, it’s a waste of your money.
Every registered business has to charge their customers VAT, at the correct rate, for the goods and services they supply.
Remember, when you are registered, you can claim back the VAT you have paid to make your taxable supplies.
When to register – GOV.UK
– via www.hmrc.gov.uk
How do I register?
The quickest and easiest way to register is to use HMRC’s online services here.
After you register, HMRC will send you your registration certificate and details of when your (usually quarterly) returns are due.
Some businesses may need to cancel their registration for a variety of reasons. This is beyond the scope of this post but we are happy to advise. Please Contact Us for more information.
What are exempt supplies?
No VAT is charged on exempt items. Don’t include sales of exempt goods or services when you are working out if you need to register for VAT. They do not form part of your taxable turnover.
Once you register, you must keep a record of all the exempt items you sell and include these in your VAT return.
Remember, if your business only provides exempt goods or services, you will not be allowed to register.
Some examples of exempt supplies are:
- financial and insurance services
- betting, gaming and lotteries
- most services of doctors and dentists
Exempt supplies and zero-rated supplies are very different.
Zero-rated goods are taxable supplies and are included in your ‘taxable turnover’. You can claim back VAT you have paid to provide zero-rated goods and services.
Exempt goods are not taxable supplies and are not included in your ‘taxable turnover’. You can’t usually claim back VAT you have paid to provide exempt goods and services.
Once you are registered, when you make a sale you must give your customer a VAT invoice. Included in this invoice must be your VAT registration number, a tax date, a description of the goods or services supplied and the amounts net, tax and gross (i.e. before tax and after tax).If your customer is registered they need this document to be able to reclaim the VAT you’ve charged them.
All registered businesses must by law keep their records for a minimum of 6 years. HMRC may wish to see these documents at any time. Electronic records are now acceptable so paper copies do not need to be kept. However they must be accessible in the event of an HMRC inspection.
– via www.hmrc.gov.uk
UK Value Added Tax can be a minefield but using a professional accountant or bookkeeper can take away the headache and ensure that you comply with HMRC’s regulations. Penalties for non-compliance are severe.
Please contact us if you need more information.
Well all of a sudden we are in March and the tax year is almost over!
That means that people like me will be nagging people like you for your paperwork and books for the tax year so that we can finalise your accounts and/or self assessment return.
The tax year finishes on 5th April 2018 and from that point self assesssment returns can be submitted at any time through to the deadline on 31st January 2019. That seems like a very long time but those weeks and months will soon fly by. If you don’t know how much tax you need to pay by the deadline you could be very unpleasantly surprised by a large tax bill.
The easiest way to avoid this scenario is to get your paperwork and records to your bookkeeper or accountant as soon after the year end as possible. They can then produce your self assessment tax return and you will know, many months in advance, how much tax you have to pay (or are having refunded if applicable).
Get your paperwork together while it’s fresh in your mind and it will take a huge weight off your mind when you hand it all over to a professional to deal with!
Making Tax Digital (or MTD) is a government initiative first announced in 2015 and is designed to simplify the way businesses report their financials to HMRC.
- No more self assessment tax returns
- Records must be kept digitally
- Real time tax position available online
- Quarterly summary report
- Must be submitted through accounting software
- Sole traders, partnerships and landlords with a turnover above the VAT threshold (£85,000) will be the first to join the scheme
Originally meant to roll out in April 2018 the government have extended the timescale so that quarterly filing won’t start until after 2020 and only VAT registered businesses will have to keep digital records from April 2019.
Currently only covering sole traders and partnerships, it is expected in time to cover limited companies too. Sole trader or partnership income must be in excess of £10,000 per year. This means it affects hundreds of thousands of small businesses.
A summary report will need to be submitted from your accounting software each quarter. It will give a breakdown of your income and expenditure by category e.g. travel, advertising etc. Reports can be made more often than quarterly if you wish.
Following the year end date an End of Year declaration will be made within 9 months from the year end.
VAT registered businesses can combine their VAT and summary figures in one submission.
We are lucky to work with such a lovely set of clients and have occasionally thought it could help them with their businesses for us to highlight them to our other clients and blog readers. We are therefore going to be creating a client spotlight post on a regular basis to introduce you to our client base.
I met earlier this week with Claire Wakely, who runs Weave & Wood Interiors in Ilminster.
Claire has been in the soft furnishings and interiors field for many years. Just a few years ago she decided to open up a retail outlet to showcase her skills and talents, along with the beautiful fabrics and many other products that she can supply. Having made a great success of this she now has a larger showroom and is an official stockist of Little Greene paint and paper. These beautiful products are luxurious and long lasting and will help make your home a unique and beautiful place to be. Click here for Little Greene’s website.
Claire’s services include custom made to measure curtains, roller blinds, pelmets and cushions. These are bespoke products, made to your specification with fabric chosen from her huge selection of sample books. My own mother has had her living and dining room curtains made and hung by Claire and is delighted with the product and service she received. There is surely no better recommendation than a whole host of satisfied and repeat customers.
Weave & Wood stock Romo fabrics and these are my personal favourite. Click here for Romo’s website.
Claire’s showroom in Silver Street, Ilminster, is a treasure trove of unusual and exciting home decor. I cannot help but want to buy most of her stock and cannot refrain from touching the luxurious fabrics, throws and cushions. From kitchens to lighting, throws and cushions, candlesticks to furniture; if you are looking for something you won’t find on the High Street you can’t go wrong with Weave & Wood.
We have worked with Claire for 6 years and cannot recommend Weave & Wood highly enough. Click here for Weave & Wood’s website.