business Archives - Southside Accountants Wimbledon

Make the Losses Work

May20

The value of shares quoted on the stock market has risen recently. This may encourage you to sell some investments before the end of this tax year (5 April 2013) in order to use your annual capital gains exemption and to soak up any capital losses. Any gains covered by the exemption (currently £10,600 per person) or capital losses are free of capital gains tax.

We can’t advise you on what to sell, but we can help you calculate the level of your capital losses and potential gains. It is essential that you tell your financial adviser or stockbroker how much capital losses you have already realised, so future disposals can be made to meet the level of those capital losses.

If you have forgotten to declare a disposal which made a capital loss on your tax return form, there may be no harm done, but you need to submit a claim for the loss before it can be set against a later gain. The deadline for claiming capital losses is now four years from the end of the tax year in which the loss arose, so you can still claim for losses made in 2008/09 and later tax years. We can help you with these claims.

Don’t forget you can crystallise a capital loss on shares which you still hold, but are now worth nothing or almost nothing. This is called a negligible value claim.

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

Finance for small businesses: seed enterprise investment scheme

Feb6

The scheme

A specialist tool aimed at a small group of investors and entrepreneurs that will assist them in developing a few businesses that might never gain funding. It is only available to individual investors in very small companies; it is not available to investors in partnerships or LLPs. The scheme is not there to replace the Enterprise Investment Scheme (EIS), but to run alongside that and the Venture capital Trust (VCT) regime.

The time limit

The scheme is not permanent, but relates to shares issued from 6 April 2012 until 5 April 2017; this term may be extended by Treasury Order. The claim must be made no later than 5 years after the normal self assessment filing date.

The investment limit

The investment limit for a qualifying individual in a fiscal year is £100,000. They cannot claim tax relief until the company has spent at least 70% of the money invested.

The investor

The individual must not be an employee of the company from the date of incorporation of the company until at least 3 years following the issue of the shares. A director is not an employee for this purpose. They must not have a ‘substantial interest’ (more than 30% of the ordinary share capital or votes) and anti-avoidance provisions exist where there are pre-arranged exits or loan arrangements.

The investment

The investment must be in cash and must be invested in shares which are fully paid when issued. They cannot carry a preferential right to dividends, to assets on a winding up, or to redemption. They must be held by the investor for three years after issue; there will be a claw back of relief if the shares are not held for the requisite period.

The tax relief

The relief is income tax relief of 50% (30% for an existing EIS scheme ) and any gain will be exempt, provided the investor (or spouse or civil partner) held the shares for three years following the issue. A spouse or civil partner receiving the shares from the original investor will be charged to tax on any claw back on a disposal. Any gain will be completely exempt; the existing EIS scheme only offers a deferred gain, but there is no limit to the amount of gain deferred.

To obtain the relief:

The company must be a new company, incorporated within the two years prior to the issue of the shares.
The shares must be issued in order to raise money for a new trade and the cash raised must be spent within the two years following issue.
The total of SEIS investments must not exceed £150,000; the limit for VCTs will increase from £2m to £5m.
The company must exist for the purpose of carrying on one or two new qualifying trades.
It must have a permanent establishment in the UK and its shares must be unquoted.
The company cannot be part of a group and must not be a member of a partnership or similar entity.
The total value of the company’s gross assets must not exceed £200,000 at the time of issue. If there is a related company the relevant proportion of the assets must be included in this total.
The total full-time equivalent employees must not exceed 25 at the time of issue; employees include directors for this purpose. The limit for an ordinary EIS scheme will increase from 49 to 249.
There must be no EIS or VCT investment in the company before the SEIS shares are issued.

Companies considering using the Seed Investment Scheme (SEIS) have the option to obtain Advance Assurance or formal clearance from HMRC Small Company Enterprise Centre (SCEC).

Before giving the assurance HMRC will consider if the company will be a qualifying company carrying out a qualifying business activity, if the shares will be eligible shares and if the money raised will be used in a manner which satisfies the rules of the scheme.

If the company wishes to rely on an assurance, the onus would be on the company to provide all relevant information drawing attention to any particular issues which could mean that the company may not meet the requirement of the scheme when the shares are issued.

Full guidance on the Advance Assurance application can be found on the HMRC website.

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

Office At Home?

Jan7

Q. I run my own company from an office in a spare bedroom at home, and my wife runs a separate company from a downstairs office in the same house. Can we both claim £3 per week expenses for use of home from our companies? Would the situation be different if we both worked full time for the same company?

A. Yes, you can both claim the use of home expense allowance, which is now £4 per week as from 6 April 2012. It makes no difference whether you both work for the same company or for different companies.

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

Goodwill on Incorporation

Jan4

Trading as a company is generally more tax efficient for profitable businesses; the tax rates are lower and many tax reliefs are only available to companies. Certain professions which were previously prevented from operating as a company, such as solicitors, can now incorporate.

If your business is loss making it may be better to remain as a sole-trader or partnership until those losses are fully relieved.

When incorporating a business, great care should be taken over the value of assets which are transferred to the new company, including the business goodwill. It is generally fairly easy to value fixed assets such as buildings or equipment, but goodwill of the business will depend on a number of factors and may not exist at all for some businesses. Examples of factors to consider include:

– Reputation of the business;
– Ability to generate future sales or fees;
– Customer & staff loyalty; and
– Location of the business.

A common approach is to estimate the capitalised value of the future profits of the unincorporated business and adjust for non-recurring items of income or expenditure. Adjustments will also be required for differences between the structure of the old partnership and the new company. The directors will be paid a salary, whereas the former partners took a profit share. Interest on borrowings will be paid by the company instead of by the partners.

Once a goodwill figure is established it can be included as part of the price to be paid under a sale agreement that transfers the business to the company. It is a good idea to include a price adjuster clause in this sale document, so if the Taxman challenges the value of the goodwill any outstanding amount of sale proceeds due to the former owners can be adjusted.

Where the former owners become directors of the new company, it is common practice to leave part of the sale proceeds owing to those individuals as loan accounts within the company. These loan balances can then be drawn down gradually from the company with no tax to pay. However, the former owners may have to pay capital gains tax on the transfer of the business to the company.

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

Self – Billing

Dec31

Self-billing’ is where the customer in the supplier/customer relationship raises the invoices to themselves for work done or goods provided by the supplier, instead of the supplier raising those invoices. Self-billing helps large organisations that need to pay out lots of small amounts to hundreds of suppliers. It allows their purchase invoices to be standardised which saves costs when processing, and payments to be made automatically at the time the invoice is raised.

However, there are significant disadvantages for the supplier who agrees to self-billing. The supplier losses control of when invoices are raised and may have no control over the amount billed and the amount of VAT shown on the invoice.

Although the VATman’s guidance on their website says that the recipient of the supply (i.e. the customer who raises the self-billed invoice) is responsible for ensuring the invoice carries the correct VAT amount, it is actually the supplier who remains responsible for the amount of VAT charged.

If you are signed-up to self-billing as a supplier don’t assume that the VAT shown on the invoices you receive from your customers is correct. You will remain responsible for any errors.

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

Whose Fault is Underpaid Tax

Dec24

Have you received a tax calculation (on form P800) which shows you owe tax that you thought had been collected under PAYE? Every year the Tax Office undertakes a ‘PAYE reconciliation’ to check whether the tax collected from pensions and salary under PAYE was the correct amount. Where a taxpayer has a number of jobs or several pensions in a year, the PAYE system can get it wrong, leaving tax underpaid.

We can help you check any form P800 you receive, but we need to see the PAYE codes issued to you for the tax year, and payslips from your employer or pension provider to check what PAYE codes they have used. Where the employer/pension provider has not used the correct PAYE code and this causes any tax not to be collected, it remains their responsibility, not yours.

Unfortunately the Taxman is ignoring this piece of law and is demanding payment of the underpaid tax from employees and pensioners, where the error lies with the employer/pension provider. We can help you challenge the Taxman on this point.

Sometimes the fault lies with the Taxman who has ignored information you or your employer have provided on more than one occasion. The Tax Office may also have let tax arrears build up over two or more years without telling you. If either of these situations apply, you can ask the Taxman to write-off the tax owing under Extra Statutory Concession A19. The Taxman is very reluctant to use this concession, but we can help argue your case

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

Getting Assets or Shares

Dec17

If you plan to gift assets or shares to your relatives, there are several taxes you need to consider:

Capital Gains Tax

You won’t make an actual profit or gain when you give away assets or shares, so you may not expect to pay capital gains tax. However, when the gift is made to a person connected to you, such as your son or daughter, UK tax law deems you to have made a transfer of the asset at its market value. This means you could well make a paper gain on the gift, which will be subject to capital gains tax. This does not apply to a gift to your spouse or civil partner.

You need to calculate this gain to see if it needs to be reported on your tax return. Where the gain from the gift, together with any other gains you make in the year, exceeds your annual exemption of £10,600, all those gains must be reported on your tax return.

To calculate the amount of the gain you need to know the market value of the items given, at the date of the gift, and the cost or value when you acquired the items. If you acquired the assets before 31 March 1982, the value at 31 March 1982 is taken as your cost value, so you need a value at that date as well. We can help you with the calculation of the gain, but it would be wise to engage a specialist valuer to determine the value of the assets (particularly property) at the date of the gift and at 31 March 1982 if required.

Gift tax

If the asset (such as property) you plan to give away is located in another country you need to take local tax advice as to whether gift tax will apply. This is not a tax we have in the UK, so any gift tax paid in another jurisdiction will not be offset against UK tax paid on the same gift. Local transaction taxes such as VAT or stamp duty may also apply, so do your research first.

Stamp Duties

Stamp duty does not apply to shares which are transferred as a gift.

Stamp duty land tax generally applies to the transfer of land in the UK, but it will not apply if the recipient gives nothing in return for the property, i.e. it is a pure gift. However, if the recipient agrees to take on a mortgage attached to the property, the outstanding value of that mortgage will be treated as consideration for the property and stamp duty land tax will apply to that consideration.

Inheritance Tax

Most gifts of assets you make will be treated as potentially exempt transfers for inheritance tax, which means they escape inheritance tax as long as you live for at least seven years after the date of the gift. You can look to take out insurance to cover the cost of inheritance tax that will become payable in respect of the gifts made during your lifetime. Gifts made into a trust may be subject to inheritance tax immediately.

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

Child Benefit Clawback

Dec10

If your net taxable income last year was £50,000 or more you will shortly receive a letter from the Tax Office about child benefit. You can safely bin this missive if your children are no longer eligible for child benefit, but where you or your partner/spouse claim child benefit you need to pay attention.

This is because from 7 January 2013 the higher earner in the family (where that person has £50,000 or more of income) will be landed with a tax charge to clawback the child benefit claimed in respect of the children. The tax charge will equal 1% of the child benefit received by the family for every £100 of income over £50,000, so 100% of the child benefit will be clawed-back when the higher earner has net taxable income of £60,000 per year.

The tax charge only applies to child benefit paid from 7 January 2013 onwards, and will be calculated on your net taxable income for the current tax year: 2012/13. Net taxable income is income after deduction of losses, pension contributions and gift aid payments but before personal allowances. So there is some scope for reducing your net income below £50,000 by paying pension contributions, gift aid donations, or by taking a smaller dividend from your own company in the current tax year. But those strategies, and other ways to manage your income, need to continue until the children are no longer eligible for child benefit.

You will be given the option of declining to receive child benefit to avoid the tax charge, and this will be explained in the Taxman’s letter. However, this is not the same as not making a claim for child benefit. It is important to make a claim for child benefit (even if you decline to receive it) as the claim can help entitlements to the state pension for a non-working parent, and ensures the child receives an NI number at age 15.

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

Home Usage

Dec3

Q. I want to buy a new business but the only way I can do that is to increase the mortgage on my house. Will the interest I pay on the extra mortgage be tax allowable for the business?

A. In principle yes, but there are restrictions to prevent improper use of this tax relief. Further restrictions are also proposed from 6 April 2013 (see above). Interest paid on loans used to buy into a partnership or to buy shares in a closely controlled company, or lend to such a company are generally tax allowable. However, it would be best to have a separate loan for this business investment, as when you repay any part of the mortgage the business part will be deemed to be reduced first. You will also have to hold at least 5% of the ordinary shares of the company and work for it for the greater part of your time.

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

IR35 Business Tests Released

Jul16

If you provide services through your own personal service company you will be aware of the tax law known as IR35. This tax rule imposes an extra charge on your company, if you would be treated as an employee of your customer or customers, if you worked for the customer directly. It is very difficult to pin down when IR35 should apply, as it depends on the relationship between the contractor and the customer, which will be different in every case.

The Taxman thinks he can generalise about what makes some companies fall within IR35 and others escape it. He has drawn-up a set of business entity tests, complete with a scoring system, to help you judge whether your business would be at high, medium, or low risk of being investigated for falling under IR35.

These business entity tests are not derived from the tax law. They merely represent the Taxman’s view of the risk of a business falling within IR35.

The scoring attached to the tests is controversial, as it penalises businesses that have no bad debts, never pay to advertise and operate from the owner’s home. These IR35 business entity tests do not change the IR35 law one bit, and will probably be ignored by the Tax Tribunal.

If you choose to use the IR35 business entity tests, you don’t have to declare your score to the Taxman, the tests are merely for your own guidance. However, if you are concerned that the business entity tests produce a high risk score for your business, we should discuss why this is the case. Are there any changes which can be made to the way your business operates which would make it less likely to be caught by IR35?

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