If you are a Director of a Limited Company then it is important to be aware of the different ways which money can be drawn from the business, and the restrictions which may apply.
The first way is through a salary, and to be able to draw money this way the company has to register as an Employer with HMRC. Even if it is just yourself as a Director being paid you still have to register as an Employer, and you are responsible for paying any Tax and National Insurance contributions to HMRC as well as ensuring that a Full Payment submission is sent to HMRC after each payrun (there are various accounting and payroll software which you can use for this). It is also important to check that National Minimum Wage is met for any employees, and that you understand your pension responsibilities for any eligible employees.
The second way to draw money from the company is by Dividend, although it is important to note that a dividend can only be paid from profit. To enable a dividend to be paid a director’s meeting has to be held to declare the dividend, with the minutes of the meeting being kept for future reference. This is the case even if there is only one director, and is often overlooked by companies with a sole director and shareholder. A dividend voucher must also be prepared for any dividends paid which should include the date, company name, name of the shareholder being paid the dividend and the amount. A copy of the dividend voucher must be given to the shareholder receiving the share, with a copy being retained by the company. The recipients of dividends may have to pay tax on them (there is a dividend allowance which is currently £2,000 and they must be declared by the individuals as part of their self assessment tax returns.
The final way to draw money is by Director’s Loan and full records must be kept of these. If you withdraw more money via this method than you have put into the company (so you owe the company money) then there may tax payable by both you and the company on this loan – it is important to get advice on this way of drawing money before proceeding with it to ensure you are aware of the tax implications.
A new tax year starts today, and with it comes some changes to tax thresholds and levels. There are quite a few changes which will affect a lot of people so I thought it would be helpful to do a summary of the key points:
Tax-free dividend allowance reducing:
The big change in my opinion is the tax-free dividend threshold reducing from £5,000 to £2,000. As it is not uncommon for Limited Company Shareholders / sole Directors to withdraw funds in a mixture of a salary and dividends, this could result in an increased end of year tax bill for any individuals affected.
Personal allowance and National Insurance thresholds:
These have increased slightly across the board, as follows:
Personal allowance - £11,850 (was £11,500)
Higher rate tax level - £46,350 (was £45,000)
Primary Threshold in relation to class 1 National Insurance - £8,424 (was £8,164)
Class 2 National Insurance threshold - £6,205 (was £6,025)
Class 2 National Insurance - £2.95 per week (was £2.85 per week)
VAT threshold:
There are no changes to the VAT threshold, so this will remain at £85,000 for the next two years.
Pension contributions:
Those who have auto enrolment pensions should already be aware that the minimum contribution levels are also increasing this month. The contributions were a minimum of 1% for both employees and employers up to March 2018, but this has now increased to minimum 3% employee contribution, and minimum 2% employer.
Student loans:
The earning threshold before which time students have to pay back their loans has also increased – for those who took out loans before September 2012 (plan 1) this has increased to £18,330 (from £17,775). For those who took out loans after September 2012 (plan 2) the threshold has increased more significantly, and is now £25,000 (was £21,000).
National minimum wage:
This has also increased this month, please see my blog dated 13th February 2018 for more details.
In the last few months I have started to attend a lot of networking events, some of which are free, and others which have a cost attached. For me personally I attend these events to meet new people and build relationships with the view to this perhaps leading to new business leads in due course. Some of the events I attend also include talks or training on a specific subject which is often very relevant to me such as GDPR.
So, can the cost of attending professionally organised networking events be claimed as an allowable business expense?
The first thing to consider when it comes to allowable expenses for tax purposes, is whether the cost has been incurred wholly and exclusively in the course of running your business (for Limited Company employees the cost also has to be necessary in the performance of duties). If the expense meets this test, then the next thing to consider is which costs can be claimed.
Attendance costs - if a networking event costs £15 to attend and this includes a drink or food (and the cost would be £15 whether or not you choose to have food or drink) then this can be claimed in full as a networking cost for the purpose of business development / marketing. Some events may however have an optional additional charge for food, and this is where the lines between allowable and disallowable expenses become more blurred. If, for example, the event costs £10 to attend and you have the option of paying an additional £5 for food, then only £10 can be claimed as the cost to attend, not the additional cost of the food which is optional and HMRC are likely to view as subsistence. The networking event would of course have to be a professionally organised event, not just a gathering of professional people in an informal environment which HMRC are extremely unlikely to view as allowable for tax purposes.
Travel costs - if the networking event involves travelling, then again this can be claimed for example mileage if you use your own car, or train / bus fares. The cost of parking can also be claimed if it just relates to the event. This is however subject to the usual rules around travel between home and work, so you can only claim the cost of getting from your place of work to the event and back, (although this isn’t an issue if like me you work from home!).
Keep receipts - and lastly the golden rule for any business expenses – always keep your receipts…
Most employers will be aware of the National Minimum Wage requirements, but not all may have factored the increases due in just two months into their cash-flow and budget.
As background the National Minimum Wage applies to anyone between school leaving age and 24 years old, with anyone aged 25 and over getting the National Living Wage. Apprentices have a separate rate, which applies to anyone who are either under 19, or over 19 and in the first year of their apprenticeship.
The minimums are split into age brackets, and the following table shows how this has changed over the last few years including the increase due in April 2018:
| Period |
25 and over |
21 to 24 |
18 to 20 |
Under 18 |
Apprentice |
| April 16 – September 16 |
£7.20 |
£6.70 |
£5.30 |
£3.87 |
£3.30 |
| October 16 – March 17 |
£7.20 |
£6.95 |
£5.55 |
£4.00 |
£3.40 |
| April 17 – March 18 (current) |
£7.50 |
£7.05 |
£5.60 |
£4.05 |
£3.50 |
| WEF April 2018 (new) |
£7.83 |
£7.38 |
£5.90 |
£4.20 |
£3.70 |
Whilst the increases may not seem much when broken down into an hourly basis, for smaller employers who primarily pay the minimum wage the increases can lead to a significant increase to the weekly or monthly wage bills.
For more information, and to find out how these changes could affect you then why not check out the HMRC guidance on this topic:
https://www.gov.uk/national-minimum-wage
Don’t forget if you are looking for support on this or any other bookkeeping matters then please get in touch.
Before I started my bookkeeping training, I hadn’t come across Payments on Account in relation to personal tax which is why I decided to write this blog in case others are in the same situation as me.
So, what is Payment on Account (POA)? As most people will be aware those who are employed pay tax through their salary based on their tax code, whereas anyone who is self-employed completes a self-assessment once a year and this determines the amount of tax they are due to pay.
The principal behind POA is that HMRC do not expect people who complete a self-assessment to pay their tax liability in one go, although some argue that POA can actually put financial pressure on some people as it means paying an element of the tax ahead of the tax year ending.
Firstly, let me explain how POA works. If an individual who completes a self-assessment return has tax payable the previous tax year which is £1,000 or more, then in addition to paying this by 31st January the following year they are also required by HMRC to make a POA of 50% of the previous year’s tax liability on the same date. They then make the second POA again of 50% of the previous year’s tax liability by 31st July that same year. The next year’s tax return is then due by 31st January the following year, and at that time they need to make a balancing payment to ensure they have paid the correct amount (this amount will usually be quite small if the tax liability doesn’t vary much year on year). The POA amount will include class 4 National Insurance Contributions (if applicable), but does not include anything owed in relation to student repayments or Capital Gains Tax – these are paid in the balancing payment.
I personally find it easier to understand with an example :
31/1/16 – it is an individuals first year of trading and they submit their self-assessment tax return (for tax year 2014/15) which confirms their tax liability is £2,000. In addition to paying the £2,000 due by 31/1/16, they also have to make their first POA of £1,000.
5/4/16 – tax year 2015/16 ends
31/7/16 – by this date they have to make the second POA, again of £1,000
31/1/17 – self-assessment tax return due for 2015/16, and this confirms tax liability of £2,200. As they have already paid £2,000 of this they only have to make a balancing payment of £200, HOWEVER they also have to make their first POA for tax year 2016/17 which is 50% of the previous tax years liability so £1,100
And so it goes on…
So, what happens if you know that your tax liability will reduce the following year, for example if your turnover is due to significantly reduce? If there is a good reason for an individuals tax liability to reduce then they can reduce the POA amounts either through HMRC online or by completing form SA303 and posting it to the local tax office. It is however worth noting that this should only be done if you are certain your tax liability will be lower the following year because any underpayments are subject to interest charges.
As mentioned above POA do not need to be made if the tax payable in the previous year is less than £1,000. It is also the case that POA is not required if in the previous tax year at least 80% of an individuals tax liability was deducted at source (i.e. through PAYE).
Taking the above into account it is important for anyone who is self employed to view their tax returns as more than just an annual requirement and to be aware throughout the year of their projected tax liability. With this in mind it is essential for money to be put to one side to not only cover the forecast tax liability for the current year, but also for any POA should the tax liability increase above £1,000.
If anyone has any questions regarding Payments on Account or would like to discuss how we can support you with your self-assessment tax returns then please get in touch.
For a lot of businesses, especially those in the retail sector, Christmas can be a very busy and profitable time of year. It can however be difficult to keep on top of the paperwork, in particular for small businesses who can find it hard to have adequate resources. Long hours are often worked, and delivering for clients is understandably a priority to ensure excellent customer service.
The Christmas post may however delay invoices being received, and on top of this, a lot of businesses shut over the Christmas period, therefore invoices to clients may not be processed as quickly as they would normally be. As January comes around, the focus is often more on cash so that suppliers can be paid, with the added pressure of the Self Assessment Tax deadline looming at the end of the month for many businesses.
In my opinion digital software can be invaluable to keep on top of invoices, enabling you to see what invoices are outstanding, and which are overdue and need chasing. This snapshot view of your debtors enables business to focus in the right areas, easily showing which invoices are high priority after the festive period. It is also a good way of ensuring that all of your supplier are paid on time, avoiding late payment fees. If you are interested in discussing the various bookkeeping software which is available then please get in touch.
If, however, you would prefer to outsource your credit control, enabling you to fully focus on your business then why not give us a call or drop us an email to discuss how we can help.
With less than two months to go until Self Assessment Tax Returns for the tax year April 2016-April 2017 need to be submitted, are you on track for submitting your Return to HMRC (or indeed have already submitted it), or have you a stressful Christmas period ahead trying to meet the deadline?
Whilst I have only been self employed for a short while, my husband has run his own business for over 12 years now, so I have experienced first-hand the stresses of submitting Tax Returns on time, especially as the deadline falls just after the busy Christmas period. Every year we plan to submit it earlier, but it can be hard to prioritise completing the Return over the day to day running of the business because, as many of us know, there are never enough hours in the day!
There are, however many helpful guides out there which can help to save time when completing the Tax Return - I personally really like the A-Z guides from FreeAgent which are simple and clear to follow and I think are invaluable for seeing which expenses can and can't be claimed, especially if you are new to the self employed world. If anyone would like a copy then please email me and I will send the guide across - there is one guide for sole traders and partnerships, and another for Limited Companies (please state which one you would like when emailing).
And of course if you want to be able to fully focus on your business during the Christmas season, then why not consider outsourcing your Tax Return to a Bookkeeper - they can take away the stresses and ensure your return is submitted on time, so you can give your business your full attention...
The Marriage Allowance was introduced in 2015, yet recent reports show that not everyone who is eligible is currently claiming it. The allowance is currently worth up to £230 a year, so what is stopping people from claiming - is it that people are simply not aware, or know whether they are eligible? I'll be honest, until I started my bookkeeping studies I didn't know much about it, which is why I have decided to write this blog entry.
So what is the Marriage Allowance?
Marriage Allowance allows an individual to transfer up to 10% of their Personal Allowance (£1,150 in the current tax year) to their spouse or civil partner, which could result in a saving of up to £230 per annum. This will only benefit where the lower income earner currently has an income of £11,500 pa or less, and the higher income earner has an income of between £11,501 and £45,000 pa (for the current tax year).
If you think you might be eligible then why not check the HMRC calculator to see if you are, and how much you could save:
https://www.tax.service.gov.uk/marriage-allowance-application/benefit-calculator/
What would you do if you had an extra £230 in your pocket for free? If you think you could be eligible then why not check the benefit calculator now!
What to do if you are eligible:
You can apply online with HMRC - in view of the low claims seen to date the process for applying has been simplified which is great news. It is also possible to backdate claims to any tax year since 5th April 2015, meaning for eligible couples the savings could be much more.
To apply the lower tax payer will need their own and their partners National Insurance numbers. Proof of identity will also be needed (for example passport number and expiry).
The online form can be accessed using the following link:
Make sure you check everywhere and spend or pay any old style pound coins in before 16th October...
http://www.bbc.co.uk/news/business-41333942
https://training-link.co.uk/caplin-bookkeeping/