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Southside Accountants Wimbledon

Specialist Tax Adviser for Southside Clients

Aug4

Southside Accountants is very pleased to be working with Cathy Grimmer. Cathy is Chartered Tax Adviser. She has been in the tax business for 30 years. We are pleased to have access to such an experienced professional on taxation matters . All our clients want to pay less tax within the law. Cathy’s experience will enable us to help our clients with more complex and grey areas of tax.

It is very important to get any legal tax saving schemes right from the start. Otherwise it may mean paying thousands of pounds to the taxman.

This is another step Southside Accountants has taken to exceed client expectations. To see what our clients think about us, please click here.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Explanation of VAT Flat Rate Scheme

Aug1

What is the flat rate scheme?

The VAT flat rate scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the flat rate scheme or not.

How will it help you?

The aim of the scheme is to simplify the way small businesses account for VAT so that you will spend less time and money keeping VAT records and calculating the VAT payable to HMRC.

Might you pay more VAT by using the flat rate scheme?

Some businesses will pay more and some will pay less VAT by using the scheme. This is because the flat rates are averages. You can estimate the effect on your business by using our calculator. Please click here for the calculator.

Who can join the scheme?

The scheme is open to small businesses whose annual taxable turnover (not including VAT) does not exceed £150,000.

Who cannot join the scheme?

There are some exclusions. You cannot use the scheme if you:

  • already use any of the schemes for second-hand goods, tour operators or capital goods;
  • have been guilty of a VAT offence or dishonesty in the last 12 months;
  • have been ‘associated’ with another business or have registered as part of a VAT group or in VAT divisions in the last 24 months.

How does the scheme differ from normal VAT rules?

Under the normal VAT rules you have to identify the VAT on each sale you make, record the value and VAT separately and pay the VAT to us as output tax. Similarly you have to identify the VAT included in the things your business buys, record the value and the VAT separately and claim the VAT back from HMRC as input tax.

Under the flat rate scheme you do not have to identify, or separately record, the VAT on your sales and purchases to calculate the VAT you owe. You simply record all the sales your business makes, including exempt sales, and apply the appropriate flat rate percentage for your trade sector to the total in each period. The result is the VAT you owe to HMRC.

How are the flat rates calculated?

The flat rate percentages are calculated from the net tax paid by all the businesses that are currently registered for VAT and eligible for the scheme. The net tax paid varies with different trade sectors and so there are a variety of flat rate percentages. You can find the flat rate perentage for your business here. The net tax calculated using the flat rate percentage allows for the fact that businesses can usually recover the tax paid on their purchases. Under the flat rate scheme you normally cannot claim input tax with some exceptions.

How do you calculate my flat rate turnover?

To calculate your turnover, you record the sales you make either at the time you invoice your customers or at the time you receive payment.

How do you calculate the VAT due?

At the end of each VAT period, take the VAT inclusive turnover of your business and multiply this by the flat rate percentage for your trade sector. For example, if your business is the repair of motor vehicles and your VAT inclusive turnover for the VAT period is £20,000 the calculation is: £20,000 x 6.5% = £1,350. So your tax due is £1,350.

What is the 1% reduction for new VAT registrations?

Newly VAT registered businesses use the flat rate for their sector minus 1%. So, if the rate for your sector is 9%, you apply a flat rate of 8% in your first year of VAT registration.

How do you recover VAT?

If you use the scheme you do not make a separate claim for input tax (VAT on your purchases) or for VAT on imports or acquisitions. The flat rate percentage includes an allowance for these items. Two exceptions follow.

 

What if you buy an expensive capital asset?

If you buy a single capital asset with an invoice value, including VAT, of £2,000 or more you can claim the the VAT on your VAT return in the normal way.

If you do recover VAT on an expensive capital asset, any subsequent disposal of that asset has to be accounted for using the normal VAT accounting rules. Add the VAT calculated to your flat rate calculation of VAT due.

Should you  issue VAT invoices?

If your customers are registered for VAT, follow the normal rules and issue a VAT invoice. The flat rate scheme affects the way you calculate the VAT you owe to us but does not change the VAT rate applicable to your sales. This means that when you issue a VAT invoice, you show VAT on it at the normal rate for that type of supply (not the flat rate percentage)

Who can join the scheme?

You can apply to use the scheme if there are reasonable grounds for believing that the following turnover test is met:

  • Your taxable turnover (not including VAT) in the next year will be £150,000 or less.

How do I calculate my taxable turnover for the first turnover test to join the scheme?

The flat rate scheme is for small businesses. The first turnover test is the value of your taxable supplies  (ie your sales) excluding VAT. For the first test, exclude any anticipated sales of capital assets but always include all of the following:

  • the VAT exclusive value of standard rate, zero rate and reduced rate supplies (ie Sales);
  • the VAT exclusive turnover from the sale of second hand goods sold outside the margin scheme; and
  • any sales of investment gold that are covered by the VAT Act

How do I calculate my total income for the second turnover test to join the scheme?

The second turnover test is the value (excluding VAT) of all your business supplies (ie sales) except anticipated sales of capital assets. This includes, in addition to your taxable supplies (sales), both of the  following:

  • the value of any exempt supplies, such as rent or lottery commission; and
  • any other income received or receivable by your business. This includes any non-business income such as that from charitable or educational activities.

Note: non-business income is included in the joining test because the scheme is for small businesses. When you use the scheme, non-business income is not included in the VAT inclusive turnover to which the flat rate applies.

How do I know what my future turnover is going to be?

You may forecast your future turnover in any reasonable way. If you have been registered for VAT for 12 months or more, the turnover declared on your returns may be a reasonable guide but take into account any proposed or expected changes. If you are not VAT registered when you apply for the scheme, you may forecast your turnover by looking at:

  • any period of trading before you join the scheme or registered for VAT;
  • the turnover of the previous business owner; or
  • information on business plans or loan applications.

What if my future turnover rises over my forecast?

However you estimate your future turnover, HMRC will not penalise you provided there were reasonable grounds for what you forecast. It is sensible, therefore, to keep a record of what figures you used to calculate your future turnover. If your forecast of turnover had no reasonable basis, you may be excluded from the scheme immediately or even from the date your ineligible use began..

What if my turnover rises once I have joined the scheme?

You may stay in the scheme provided your total VAT inclusive turnover for the year just gone does not exceed £225,000. Make this check on each anniversary of your business joining the flat rate scheme. Additionally, you must leave the scheme if your income increases so that there are grounds for believing it will exceed £225,000 in the next 30 days alone.

How can I apply?

Call the National Advice Service on 0845 010 9000. They can take your application over the phone.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

What expenses are allowable against rental income?

Jul26

Broadly speaking, in calculating rental  profits a taxpayer can deduct business expenses so long as they are:

  • incurred wholly and exclusively for business  (rental) purposes; and
  • are not of a capital nature.

It is not possible to set out all the expenses that are allowable for tax purposes in all circumstances but some idea of the main types of expenses that are likely to arise in a rental business and also some idea of what can or cannot usually be claimed as a deduction in calculating rental business profits are covered in this post.

For an expense to qualify the business purpose must be the sole purpose. A non-business or private purpose prevents any deduction from business profits where there is no objective yardstick by which any business element can be distinguished from the non-business element.

Examples of deductible expenses include:

  • Repairs and maintenance;
  • Interest paid;
  • Capital allowances;
  • Wear and tear or renewals allowance;
  • Travelling expenses;
  • Legal and professional fees;
  • Managing agent’s fees;
  • Insurance;
  • Rents and ground rents paid;
  • Lighting, heating, cleaning, gardening, security, caretaking etc.;
  • Advertising;
  • Accountancy fees for preparing the accounts and agreeing taxation liabilities;
  • Council tax, business rates and water rates – if paid by the landlord;
  • Bad debts and the cost of pursuing debts;
  • Staff costs, including statutory redundancy pay and training.

Repairs and maintenance

  • Expenditure on repairs is deductible, including ordinary repairs and decorating before the building is first let;
  • Expenditure is not deductible for the cost of alterations and improvements, or the cost of bringing a newly bought building into a fit state for letting. These are capital expenses;
  • Expenditure reimbursed by insurance is not deductible.

Interest

Interest payable for the purpose of the property letting business can be deducted in the accounts. This includes interest on a loan to buy or improve the property or to fund repairs.

Travelling expenses

  • Travelling expenses are allowed if they satisfy the ‘wholly and exclusively’ rule. For example, the costs of travelling, solely for the purpose of the business, are allowed between let properties, or to a let property from the place where the rental business is administered;
  • Travelling expenses are not allowed if private purposes are included in the travel, such as personal shopping or family visits;
  • Where the business is administered from the landlord’s home, the cost of travelling from there to the properties is unlikely to be allowed if the home is far away from the properties, as the need for the journey is considered to be dictated by the personal preference of the landlord to live in a particular place, rather than the needs of the property business.

Legal and professional fees

  • Fees on the purchase of a property or for the first letting agreement are treated as capital expenses and are not tax-deductible, if they are for a period of more than a year;
  • Fees for a letting agreement of less than a year, or for renewing a lease for less than 50 years, are deductible;
  • Other professional fees, which are normally allowed, are those for insurance valuations, and for evicting an unsatisfactory tenant in order to re-let the property.

Income from property is affected by a large number of tax rules – the reasons for this are the variety of uses to which property can be put, and the different ways in which income and profits arising from property can be taxed. Substantial profits can be made on single transactions, making tax planning important. The large volume of tax legislation affecting property means that the precise way in which a transaction is structured can significantly affect the tax payable.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

How Long Should you Keep Your Tax Records?

Jul19

As a taxpayer, you need to keep records to support any of the entries in your Personal Tax Return.

If you’re in business or receive income from property renting, you’ll have to keep the back-up records for five years and ten months (in other words, 70 months) after the end of the tax year when the income was received.

If you don’t have business or rental income, the period of record-retention is reduced to 22 months.

From April 1996:

• the law requires you to keep records of information received from your employer and other records so that you can complete a tax return fully and accurately if you are asked to do so;

• employers must provide their employees with certain information that they need to help them fill in their tax returns (if they get one).

You should keep the following information you receive from your employer:

• P45 which contains details about your pay and tax. If you leave your job during the tax year, your employer will give you form P45. You should keep part 1A of this form.

• P60 containing details about your pay and tax. Your employer should give you this by 31 May after the end of the tax year (if you were in your job at 5 April).

• Details of your taxable expenses and benefits in kind (sometimes known as ‘P11D details’). Your employer should give you these by 6 July after the end of the tax year (if you were in your job at 5 April).

• Your employer may also give you information about expenses and benefits in kind you received which were included in a ‘dispensation’ or ‘PAYE Settlement Agreement’. These do not need to be included on your tax return.

Please click here for our core taxation service.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Get those testimonials!

Jul13

Bare All and Stand Out

To stand out from your competition and give your business real credibility get testimonials from your customers and publicise these on your website. Potential customers  are savvy  they will not be taken in by made up testimonials or testimonials that are not from an independent source. To give your testimonials credibility you need to ensure you do not only show the good, but also the bad and the ugly.

Every time I read 100% satisfaction testimonials, I move on to someone else who is honest enough to show me that they are not perfect. Likes of Amazon are excellent examples where they do not remove critical testimonials about them. Furthermore, this is a great way to ensure you are always on  your guard to make sure that you are doing everything to provide  outstanding customer service.

How to do it?

Sign up with FreeIndex business listing directory.  Click  here to do this . You can advertise your business for free in just a short space of time but the best thing about FreeIndex  is that it ranks businesses in each sector by the number of reviews they have received from their customers.

For example they are 1362  listed businesses in the “accountants” category. In this category with just 19  reviews we are listed as  number 1 in the rankings.

Once you have registered on FreeIndex, you can send your customers a link to leave you a testimonial. They independently rate you against the following criteria:

  • Value for money
  • Customer service
  • Quality

FreeIndex have measures in place to ensure that the reviews system is not abused.

The way to put these testimonials on your website is by copying a piece of code from FreeIndex  and pasting these code on your website. This  will show the latest reviews you have received on the FreeIndex site, therefore acting as a constantly updating testimonial list. Click here for an example of this.

Please note I am not connected to FreeIndex,  apart from being listed on their website and acting as their Finance and Accounting Expert for which there is no pay.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Tax Implications Of Private Use of Company Van

Jul8

Where as an employee your company van is made available to you for private use,  you will only be taxed on it if you actually use the van for private journeys.  Travelling from home to the main place work and vice versa are allowed without these being classed as private journeys.  Furthermore, you are allowed insignificant private use without any tax implications.  Examples of these include stopping at a newsagent on the way to work or calling at the dentist on your way home. If these circumstances do apply to you then it would be best:

  • To keep a mileage record on the use of your van
  • Sign an agreement with your employer saying that the van is only to be used for business and insignificant private use and for travelling between your home and the main place of work.

Where the company van is available for private use and you use it for private journeys, this will raise a taxable benefit in kind of £3,000 per annum. For a basic rate tax payer, this would result in £600 tax bill per year. Further, if you are also allowed free or subsidised fuel, this will result in additional benefit in kind of £500 per annum, resulting in a further tax bill of £100 per year if you are a basic rate tax payer.

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If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Tax Review Through Form 810

Jul6

A few people are lucky enough not to have the burden of completing a Self Assessment tax  form every year. The Taxman may still keep an eye on you now and then to make sure you are paying the right amount of tax. He will do this by asking you to complete a form called 810.

The taxman  may issue  form 810 every three years. on some ocassions he may issue it more frequently. If you are issued this form, there is no penalty for not filling the form.  However, if more tax is due to the Taxman you may end up with interset to pay plus penalties for late payment. By not completing the form you could lose tax refund that may be due to you.  So it is good practice to keep HMRC informed of change in your income.  Where you do not complete the annual Self Assement  form, form 810 is a good way to keep the taxman informed.

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Tax Centre for tax help sheets.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Paying Spouse Or Children Wages To Reduce Your Tax

May26

Your spouse/civil partner may not have any income at all, and almost certainly your children don’t. This means their personal allowance is being wasted every year. Even children are entitled to a personal allowance.

If the amount up the level at which national insurance becomes payable of £5,715 in 2010/11 was paid to them as wage, they would pay no tax on it and your business profits could be reduced.

Please note that children under the minimum school leaving age can only work a limited number of hours per week and local by-laws may restrict their working hours further.

If you pay just 20% income tax and 8% Class 4 National Insurance this would save you £1600 every year on each salary. And how many children do you have?

STOP! It’s not quite that simple. To pay wages like this you need to follow the following rules:

  • It must be for work actually done. Now it’s going to be tough to argue your 2-year-old son is working for you but many wives/husbands do work and mature children may also help out.May be they do the books, answer the phone, stuff envelopes, etc. Keeping out of your way so you can get on doesn’t count, as valuable as it may be. Draw up a list of their responsibilities to help your case.
  • At present they do it for free because it’s a family business but they should and can be paid for it. If you make your spouse a director, all the responsibilities of this imposed by Company Law must be worth something.
  • You can also do this where you have property that you rent out and the spouse manages the properties.
  • If this is the case, it’s reasonable to pay them a salary commensurate with what they actually do. How much would it cost to get someone in to do that job? The minimum wage level is at least a good place to start but more if you can justify it.
  • The amount must actually be paid. It’s no good the accountant just putting it through the accounts at the end of the year.Pay it, ideally through the bank rather than cash so that it’s easy to prove it’s been paid and record it in your accounting records.
  • Comply with any PAYE procedures such as getting a P46 signed, completing an end of year PAYE forms as you would do for normal staff. Remember, it may also help keep up their National Insurance contribution record even if they don’t pay any National Insurance on the salary.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Payroll Taxes

May19

Irrespective of the form of business in which you operate, if you are going to have employees, then you will have to contend with payroll taxes.  The brief summary that follows will give you some guidance in the rules and regulations of H M Revenue & Customs.

 

Helpful publications

H M Revenue & Customs publish various booklets relating to how PAYE is operated and the legislation that you have to comply with.  Not only do you collect and remit PAYE to the Collector of Taxes on behalf of H M Revenue & Customs, you also operate the sick pay scheme and maternity pay scheme.  You should run the PAYE scheme in accordance with the legislation and should you fail to comply then H M Revenue & Customs will look to you for the tax or NIC you failed to deduct.  This can be costly if you are unable to recover the tax and NIC from the employee.

Do you have employees?

Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works.  The question of whether an individual is employed or self-employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements.

In certain areas H M Revenue & Customs has placed emphasis on reclassifying individuals claiming to be self employed and has issued leaflet IR56 entitled “Tax: employed or self employed”.  This booklet sets out the questions that should be answered to determine the problem.  If you have treated someone as self employed and subsequently after a routine visit from H M Revenue & Customs it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on you.  Therefore it is important to ensure when using the services of self employed people, that they are in fact self-employed. If doubt exists as to the status of an individual, the situation can be clarified with H M Revenue & Customs.

The Operation of a PAYE Scheme

Upon registration H M Revenue & Customs will send to you guidelines on operating PAYE, National Insurance, Statutory Sick Pay and Statutory Maternity Pay (employer’s pack). Included will be a number of forms with which to operate the PAYE and NIC system.  You should familiarise yourself with and have supplies of these forms, which are as follows:-

 

P11 Deduction working sheet
P46 Notification to the Inland Revenue where no code has been notified to the employer and application for coding
P46(Car) Notification of a car provided for the private use of an employee or a director
P45 Details of employee leaving
P14/P60 End of year return and employers certificate
P35 Employer’s annual statement
P38A Employer’s supplementary return
P11D Expenses and benefits
P9D Expenses payments and income from which tax cannot be deducted.

In order to calculate the amount of tax and national insurance due by an employee, H M Revenue & Customs will supply you with sets of tables.  By reference to the “tax free” tables and an employee’s tax code you will be able to calculate the amount of salary that is not subject to tax.  The difference between this figure and the gross amount is the employee’s taxable pay.  This can then be calculated by reference to another set of tables.  The employer’s and employee’s national insurance is calculated by reference to the gross pay with a third set of tables.  Special rules exist for the calculation of national insurance for directors.

The tax and national insurance should be paid to H M Revenue & Customs by the 19th of the month following that in which the salaries were paid.

In most businesses, the directors, and often the employees, have benefits that are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel.  Class 1A national insurance contributions are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available.  In addition, H M Revenue & Customs requires on an annual basis, a form P11D (Return of expenses payments and benefits) for all directors irrespective of income and all employees receiving remuneration including the benefit in excess of £8,500.  For those employees earning less than £8,500 but who receive expense payments and benefits, a form P9D is required.

A form P46(Car) needs to be completed quarterly on 5 July, 5 October, 5 January and 5 April if any employees have been provided with or have changed their company car.  Further details are given on the taxation of company cars in Inland Revenue leaflets IR132 and IR133.  H M Revenue & Customs will still require form P11D to be submitted annually in addition to the P46 (car) forms.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Registering your business with the Tax Authorities

May9

A significant task for the new business owner is ensuring that the business is properly complying with the extensive tax and information filing requirements imposed by the various authorities. Problems and penalties could arise if the new business is not registered with the appropriate tax authorities in a timely fashion. While this post is not intended to be an all-inclusive list of filing requirements, it summarises some of the more prominent requirements common to most businesses.

HM Revenue & Customs It is necessary to notify HM Revenue & Customs of your existence by completing forms CT41G (companies) or CWF1 (sole traders/ partnerships). The form notifies HM Revenue & Customs of your accounting date, your accountant, and also enables a PAYE (Pay As You Earn Scheme) to be set up, which is a requirement if you are to be an employer. If you fail to register within the first three full months of commencing business a penalty of £100 may be levied.

H M Revenue & Customs – NI Contributions Office

Depending on the level of profit, sole traders and partners have a liability to Class 2 NIC, and these are payable either quarterly or monthly by direct debit. Class 2 contributions are at a weekly level of £2.40 (where annual earnings are £5,075 or more for 2010/11) and the necessary form to collect Class 2 contributions should be completed at the same time as the form CWF1. Leaflet CA02 ‘National Insurance contributions for self-employed people with small earnings’ gives full details and an application form for exemption from liability.

H M Revenue & Customs – VAT

You need to consider if it is beneficial to be VAT registered from the outset. If you are registering for VAT, form VAT 1 needs completing, and if you are a partnership, form VAT 2 needs to be completed, in addition to the VAT 1, giving details of all the partners. Alternatively, an online registration process is available on HMRC’s website. If turnover exceeds the compulsory registration limit, £70,000 at 1 April 2010, in any period of 12 months or less Customs must be notified within 30 days of the end of the month in which the threshold was exceeded.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.