The question of  how much should be taken as salary and how much as dividend to minismise the tax bill  is raised very often.  I will response this question based on the normal small business situation. My response is not intended to apply people with very high earnings or where the company is making more than £300k profits per year.

The balance:

- Pay yourself a salary of £5,715

- Any further sums you need take it as dividends

Pay Dividends Correctly – Or Pay The Consequences
This is an area of tax planning that HMRC may want to attack in future years. You don’t want the Taxman wanting to treat the payments as a loan to you or even as salary.  If the dividends are treated as a loan, which is the Taxman’s most likely approach if you do things wrong, the company must pay 25% of the loan over to HMRC, and you are personally assessed to a benefit for having an interest free loan from your company. So this is what you need to do…

• You need to know you have enough retained profits to be able to pay the dividends by law. Retained profits are all profits since the company started that haven’t already been paid out as dividends.

• Check your company’s Articles of Association as to who can recommend and authorise a dividend. The directors of the company will normally recommend the dividend, and the shareholders will approve that recommendation.

• Pass a company resolution authorising the dividend. A simple standard word-processed document can be used, which we can provide to you if you sign up for our newsletter http://www.southsideaccountants.co.uk/diary/sign-up-to-our-monthly-tax-saving-tips-newsletter/

As a Director of  a small limited company you have 9 months, from your accounting year end date to file your accounts with Companies House. However, if you are a new company you have 21 months to file your accounts from the date of incorporation of your company.

You will get a reminder from Companies House about 6 weeks before your accounts are due. This reminder will be sent to your registered office address.

If you miss the deadline of filing your company’s accounts you will incur an automatic penalty. Please be aware that late filing of accounts or not filing the accounts may mean you could be prosecuted and may end up with a criminal record and a fine that could be as high as £5,000.  You may also be disqualified acting as a director.

Late filing penalties are as follows:

Missed Deadline by:                                                  Penalty

Less than 1 month                                                            £150

Over a Month but less than 3 months                                 £375

Over three months but less than 6 months                         £750

Over 6 months                                                                £1,500

The above penalties will be doubled if you are late in filing the accounts again in the following year.

If your tax affiars are straightforward and you pay tax through PAYE (Pay as You Earn)  you will not need to complete a tax return. However if your tax affairs are complicated and/or you receive income from many sources, then you will need to complete a tax return.

These are the most common groups who are asked by HMRC to complete a tax return:

• Self-employed

• Company directors

• Income from savings and investments that are £10,000 or above

• Income from rental (after expenses) of £2,500 or above

• Income is over£100,000 in a tax year

• You need to pay capital gains tax (CGT).  This following link explains CGT . It talks about CGT on the sale of shares. The principles are the same whether you are selling shares or any other assets http://www.southsideaccountants.co.uk/diary/2010/01/17/what-is-the-tax-position-if-listed-company-shares-sold-at-a-loss/

• You want to claim certain expenses. For example as an employee you want to claim professional subscriptions of £2,500 or more.

• You live or work abroad

The onus is on you to complete your tax return. If you are not sure whether you need to complete a tax return please contact HMRC or ask your accountant.

Do I need an Accountant to complete a tax return?

You do not need an accountant to complete a tax return. However, to ensure that you pay the minimum amount of tax within the law, it would be best to employ an accountant. http://www.southsideaccountants.co.uk/diary/2009/11/17/check-your-accountant-is-qualified/

What is the deadline  for completing tax returns?

• There is a deadline of  31/10 if you complete a paper tax return.

• If you complete a tax return online the deadline is 31/1.

What if I don’t complete a tax return, when I am required?

You will get an automatic penalty of £100. After several reminders from HMRC, you will get a big fine as high as twice your tax bill plus  interest.

http://www.southsideaccountants.co.uk/taxation-services.html#perstax

As an employee you will only be taxed on a company van if you use it for private (non business) journeys. Private use other than commuting (work to home and vice versa) means using the van for your social activities or your supermarket shopping.

If your employer  allowed you unlimited use of the van, this will be assessed under PAYE as benefit in kind of £3000. If your employer also pays for the private fuel, there will be additional £500 benefit in kind on you. If you are basic rate tax payer (20%)  for the tax year 2009/10, your tax bill for private use of the van will be £700.

Where your only private use of the van is for home to work  travel (and vice versa) this is not treated as private use so you will not be taxed under these circumstances if all other private use is not allowed by your employer. Your employer should ask you to sign an agreement stating that you will only be allowed to use the van for private purpose to travel from your home to work and vice versa. Any other private use would not be allowed. You also need to keep mileage logs recording your mileage for each business journey and the reason for the journey.

To ensure you do not end up with an unwarranted tax bill, please make sure you that you sign the only business use agreement before the new tax year starts – 6th April.

http://www.southsideaccountants.co.uk/free-consultation.html

Donating under Gift Aid means that the charity you are donating to will be able to recover 28p for every £1 you donate from the Taxman.  This is available until 5th April 2011.

For your charity to recover this cash you must give a Gift Aid declaration. Where you make a donation over the phone instead of  using a website, your charity will write to you to confirm this Gift Aid declaration.

Another requirement is that you must be a taxpayer who has paid tax that is at least the amount  that you charity will claim under Gift Aid.  If you are not a taxpayer you cannot make a Gift Aid declaration.

If you are a higher rate tax payer you can also claim the difference the 40% high rate of tax and 20% basic rate of tax on your personal tax return. You need to keep your accountant informed of donations you have made under gift aid so he/she can claim the difference.

This is a plain English Guide to Income tax.

What is income tax?

This is tax paid on money you earn, It includes your salary, some state benefits, savings and pensions. If you are an employee benefits such as company cars are also taxed.

Please note the rates below are for the tax year 2009/10.

How much tax do you pay?

This depends on how much you earn.

All of us are entitled to earn up the the level of our personal allowance of £6,475 (for the tax year 2009/10) without being taxed. This is your tax free income that the taxman cannot touch.

Those of us who fall in the higher age bracket get a higher level of personal allowance:

• Aged between 65 to 74 the personal allowance is £9,490

• For people  aged 75 and over it is £9,640

There is also a blind person’s allowance, and married couple’s allowances based on age

After using your personal allowance, any income that you earn after £37,400 you will be taxed at 20% . Any income above £37,400 after using your personal allowance will be taxed at 40%.

Any interest paid on your savings, the first £2,440 above your personal allowance will be taxed at 10%.  However, if your other income (non savings) exceeds £2,440 after deducting your personal allowance, then any interest from savings will be taxed at the basic rate of 20%.

How is income tax paid?

If you are:

Employed: Tax will be collected through PAYE (Pay As Your Earn). If you receive a pension, your pension provider will collect the tax in the same way.

Self Employed: Tax will be paid through self assessment. You or your accountant will complete a self-assessment form to determine your tax bill.

Savings Income : Your bank will deduct tax from the interest you receive it.

Newsletter

http://www.southsideaccountants.co.uk/diary/sign-up-to-our-monthly-tax-saving-tips-newsletter/

If you are selling some stuff  that is lying around in the attic then the answer is unlikely. To pay tax on what you sell you either need to be trading or make a capital gain.

HMRC are likely to consider you as trading  where you are buying or making goods to sell them on to make a profit. This also applies where you sell these goods for a third party and you are paid a commission on your sales.

If  you just sell  odd items on Internet auctions, classified adverts or car boot sales it is unlikely HMRC will regard you as self-employed. This is because in most situations the amount you receive for goods sold is less than the amount you originally paid for the second hand goods you have put up for sale.  Tax is only to be paid where you make a profit.  You have have not made a profit here.

The same applies to capital gains tax. You only need to pay this tax on gains you made on selling certain assets. You will only make a gain where you sell the asset for more than what you paid for it or where the value of the asset has increased over the period your ownership and price you sell it for is above this increased value. The items you sell are more than likely to personal effects or goods – these are known as chattels, they are separately worth than £6k when you sell them. They are exempt from capital gains tax so it is unlikely that you will make a gain that is chargeable to tax.

If you would like us to help just get in touch.

http://www.southsideaccountants.co.uk/taxation-services.html#perstax

I am looking for people who would be interested in joining  a 4n (4 networking) group in Putney. Networking as you may know is the most effective way to form good relationship this in turn will further your business.

I was cynical about networking. After attending 4n networking  meetings I am converted. Very friendly and easy going meetings. You will not be held up by rules. I did not like BNI at all – just too many rules. 4n is different.

Please call me on 020 875 3314 if you are interested in attending  a meeting  just to find out more. You are allowed to attend two meetings before deciding to join.

This is just a big caution for those considering a franchise – be very careful. There are more than a few franchisors who are very good at presenting a positive picture of how well you will do. The reality may will be very different.

Do not take the fact that they are a member of  The British Franchise Association (bfa) as an indication of additional security. BFA  is funded by franchiors. In addition, it does not have any legal authority over franchiors. When you have problems, it may suggest mediation. This is likely to cost you.

I am sure they are some good franchisors but they are many who simply will not to do much to help you.

There are many people I know who have been bitten badly by money grabbing franchisors.

If you decide to join a franchise please make sure you go with your eyes fully open by doing  your own research. Proceed with extreme caution.



You as an empolyer can recover VAT on expenses incurred on staff team building where this event is wholly for the business purpose.  The same also applies to staff parties, staff outgoings and other similar events.

However, you will not be able to cover VAT where:

• The event is exclusively for the directors of the business. For you to recover all staff should be invited to the event.

• Where your employees merely acts as hosts to non-employees and the only purpose of the event  is entertaining non- employees.

http://www.southsideaccountants.co.uk/tax-centre.html

On a buy to let mortgage you get tax relief on the interest on this mortgage and not on the capital repayment part.

With a repayment mortgage, the interest element decreases over the period of the loan as more of the mortgage is repaid. This means the amount of interest you can offset against your rental income decreases and your tax bill rises.

The solution  may be to take out an interest only mortgage…

• Repayments would be less each month and the mortgage would not reduce so the interest would  remain high.

• The saving on the lower mortgage payments can be  added to the repayments on say your normal home mortgage and so repay this off quicker instead.

By organising  your mortgage in this way, you ensure your tax on the rental income is minimised. What you are doing is paying less interest on your residential mortgage which is not tax deducible and more interest on your buy to let mortgage which is!

http://www.southsideaccountants.co.uk/promises.html

What is it?

Inheritance Tax is usually paid on your estate when you die. Most estates don’t have to pay Inheritance Tax because they are valued at less than the threshold (£325,000 in 2009-10).

Give It Away And Live For 7 Years

No inheritance tax (IHT) is payable on most gifts in your lifetime so long as you live 7 years after the gift. These gifts are known as a Potentially Exempt Transfers (PET)

If a gift is made but there is some reservation on it, such as gifting your house with the understanding you can still live there until you die, this will not count as a PET and will still form part of your estate that is subject to IHT on at death. However, the gift will be effective for capital gains tax, which can create a double tax charge for the person that inherits the house.

If you give away cash that is used to purchase your house, you can be liable to income tax on the benefit of living in the house. This is called the pre-owned asset charge.

There is a sliding for scale for the amount of IHT payable for death within the 7 years. Of course if your estate is worth less than £325,000, no IHT is ever payable.

Other Gifts That Are Always Free Of Inheritance Tax

The following will always be free on IHT, whenever they are made…

• Small gifts to the same person of not more than £250 in a year.

• Gifts in consideration of marriage of £5,000 from parents, £2,500 from grandparents and £1,000 from anyone else.

• Normal expenditure out of income where the amounts given are part of your normal expenditure taking one year with another.

• Amounts up to £3,000, with any unused amount being allowed to be carried forward to the following tax year.

• Capital transfers for family maintenance – often connected with divorce.

• Any gifts between spouses/civil partners, where the person who receives the gift is domiciled in the UK.

• Any gifts to charities or political parties.

Husband and Wife (or civil partners)

No inheritance tax is payable on gifts between spouses or civil partners as long as both parties are domiciled in the UK. This is often used as a basic method of IHT avoidance. If the gift is a transfer to a foreign domiciled spouse it is only exempt up to £55,000.

With effect from 9th October 2007 spouses and civil partners will now be able to make full use of the nil rate band belonging to each spouse. This is retrospective and applies to anyone with a spouse or civil partner previously deceased. That gives a total inheritance tax exemption for a married couple of £650,000 (for 2009/10). The new rules allow any unused part of the nil rate band on the death of the first spouse or civil partner to be passed to the surviving spouse or civil partner for use on their death.

Say Fred dies on 1 October 2009 with an estate worth £650,000 and his wife did not use her nil rate band when she died previously, he now has the benefit of two nil rate bands totalling £650,000. Now Fred’s executors will pay no IHT at all. The amount of the nil rate band that can be transferred is the proportion of the nil rate band that was unused on the death of the first spouse or civil partner.

For example if on the first death, 50% of a 325K nil rate band was unused, if on the second death the nil rate band is 350K at that time, then 50% x £350K = £175K is available for use in addition to their own nil rate band. There is a maximum of an amount equal to the nil rate band in force at the time of the second death that can be used in addition. Therefore, it doesn’t matter how many ex-spouses or civil partners there are, it is not possible to have a total nil rate band of over 650K in 2009/10.

http://www.southsideaccountants.co.uk/choose-accountant.html