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By Cheaper Accountant, Sep 17 2019 07:00AM

If you are the director of a limited company and you work from home, as a lot of our clients do, you should consider renting a room to your limited company. This is fairly straight forward to set up and the rent paid by the company can be used to reduce any taxable company profits and in turn reduce your corporation tax bill.


Things to consider


1. You will need to create a valid rental agreement to support this arrangement.

2. You will need to calculate a suitable rent to be paid by the limited company.


What about personal taxes on the rental income I receive?


When the rent that is charged to the company is calculated you need to remember that the rent charged should be equal to the cost of the room to you. This way the rental income that you receive will be equal to the cost of the room and as such there is no taxable gain.


You will need to remember to disclose the rental income received and the associated costs on your self-assessment tax return but no income tax will be due.


Who can do this?


The best part to all of this is that you can operate this arrangement if you rent your home or if you own your home, so no one is excluded. The rental calculations will be slightly different as the rent you pay to your landlord will need to be considered if you rent your home vs the mortgage interest you pay if you are a homeowner.



If you are interested in setting up an arrangement like this then feel free to contact one of our cheap accountants who will be able to advise you further and calculate an appropriate rental charge for you as well as drawing up a rental agreement to support the arrangement. It’s also worthwhile noting that the professional advice and guidance you need to enter into a transaction like this is provided free of charge to all of our paying clients.

By Cheaper Accountant, Sep 6 2019 07:18AM

It may be tempting to simply not register for Child Benefit if you are a high earner due to the High-Income Child Benefit Charge (HICBC) which can result in the full amount of child benefit for the year being repaid when your self-assessment tax return is filed. Makes sense. However, you could be missing out on a subtle benefit that not many people will be aware of. Let me explain further below.


The repayment mechanism that was introduced by the Government some years ago now as part of the "Austerity" reforms is applied when the parent claiming child benefit, or their partner, earns more than £50,000 a year. The repayment rate increases from above £50,000 all the way up to £60,000. At an income of £60,000 the charge (or repayment) is equal to 100% of the child benefit received.


If you are a parent earning more than £60,000 a year the temptation may be to simply not to make a claim for the child benefit, since this will need to be repaid in full.


However, what not everyone realises is that a claim for child benefit also confers state pension rights. A parent who claims and is registered for child benefit relating to a child under the age of 12 will automatically receive Class 3 National Insurance credits. These National Insurance credits provide a qualifying year for state pension purposes of up to 12 years.


An individual needs 35 qualifying years for the full single-tier state pension and at least 10 qualifying years for a reduced state pension. Now you can see the appeal here!


Failing to register for child benefit can mean missing out on an automatic entitlement to 12 qualifying years towards the state pension. This could be a huge miss if the parent is a stay-at-home parent or even working part time. This is a strong chance that not enough NI contributions would have been paid through employment to make it a qualifying year.


Don't worry about having to repay the child benefit if you do earn more than £60,000. You can simply call HMRC and elect not to receive it; this is very different to not claiming it.


You can also backdate a claim for child benefit by up to three months. So if you are in this position you should claim without delay.

By Cheaper Accountant, Apr 1 2019 07:00AM

As we enter the 2019/20 tax year, which begins on 6 April 2019, the strategy of paying yourself a low salary from your limited company topped up with dividends remains as important as ever when seeking to minimise the tax take on your income. In fact, this strategy remains the lowest tax option. So the strategy to pay yourself remains the same but this blog article will explain how much you can pay yourself without incurring any income tax and national insurance charges.


The good news is that the monthly sum that we recommend you pay yourself has increased to £715 a month (up from £702 a month during 2018-19) which results in an annual director’s salary of £8,580. You should then pay yourself dividends on top of this low level of salary.


At this level of salary you won’t have to pay employer or employee national insurance contributions and no income tax will be due to be paid to HMRC on the wage you receive. The dividends you receive will be subject to dividend tax but a tax-free dividend allowance of £2,000 will apply during 2019-20.


The total director salary of £8,580 is less than the personal allowance (£12,500) for the 2019-20 tax year but don’t be tempted to pay yourself up to the personal allowance as you will then end up paying more tax.


If you pay up to the personal allowance you will be liable to pay national insurance contributions that can be avoided at the £8,580 salary level.


The lowest tax option is to simply pay yourself dividends instead to use up the remainder of your personal allowance and then use the dividend tax free allowance. This means that you can receive a total of £14,500 tax free (personal allowance plus the dividend allowance).

By Cheaper Accountant, Nov 26 2018 06:26AM

We previously blogged about the Rent a Room scheme that allows an individual to receive up to £7,500 a year completely tax free by letting out a furnished room within your home. Your home can be rented or owned with this tax free scheme applying to both scenarios.


How does this work?


You will receive automatic tax relief when the rental income you receive remains below the threshold of £7,500 during the tax year (6 April to 5 April the following year).


Where more than one individual receives income from letting a furnished room the threshold is reduced by 50% meaning that each separate person can receive up to £3,750 tax free.


If you receive rental income from letting a furnished room that is over and above the threshold of £7,500 (or applicable reduced threshold if income is received by more than one person) then you will pay tax on the excess amount only.


What if I make a loss?


Utilising the Rent a Room scheme may not always be the best option for all taxpayers. You will benefit more from not using the scheme if your expenses are greater than the rent received and you make a loss. Being able to carry forward any loss will reduce the tax due on future rental profits.


What are the New Changes?


To ensure that the tax relief gained from using the scheme is aligned to the aim of increasing the supply of affordable residential accommodation, rather than the benefit simply going to users of websites such as Airbnb, a new shared occupancy test will be introduced.


Shared occupancy test


Under this new test, the individual receiving the rental income must have a ‘shared occupancy’ for all or part of the letting period.


This indicates that the physical use of the property in question by the tenant must overlap with the use of the residence as sleeping accommodation by the landlord or a member of his or her household.


A second tenant cannot be used to satisfy the test. As things currently stand a period of overlap of only one night would satisfy the test but this could change when further guidance is issued by the Government during the coming months.


So a tax on Airbnb landlords I hear you say!!! ….. you could be right.

By Cheaper Accountant, Aug 20 2018 05:55AM

We sometimes receive client questions about paying voluntary national insurance contributions and is this an option and what are the benefits of doing so. This blog article will highlight what can be done with regards to making additional national insurance payments (or contributions) and what this means for you and your state pension.


Voluntary National Insurance Contributions


It is an option to make payments for voluntary national insurance contributions to plug any gaps in your contributions record.


A full 35 qualifying years of national insurance contributions are needed to receive the full single-tier state pension. This state pension is paid to individuals who reach the state pension age.


Where an individual does not meet the 35 qualifying years requirement they will receive a reduced state pension. A minimum of 10 qualifying years is needed. Anyone with less than the 10 years will not receive a single-tier state pension.


Where an individual does not have the full 35 years they can choose to pay voluntary contributions to boost their pension entitlement.


Check your National Insurance Record


You should check your national insurance record before making any voluntary contributions. This can be done online here: https://www.gov.uk/check-national-insurance-record


You will then be able to identify any gaps in your contributions and decide if you want to make any voluntary contributions to ensure that the full 35 years is reached.



If you are in any doubt about future strategies for paying NI contributions feel free to contact one of our cheap accountants who can provide you with the accounting advice and guidance you need.

By Cheaper Accountant, Aug 5 2018 08:37AM

This week the Bank of England increased interest rates for only the second time in the last ten years and signalled that further rises could be expected in the not too distant future.


The bank increased the rate from 0.5% to 0.75% and the rate is now at it's highest level since March 2009.


The bank was expected to increase the rate back in March of this year but decided to wait a llittle longer until they were happy with the current economic conditions within the UK and the expected growth in the economy.


This rate increase will impact mortgage holders and will be immediately felt by anyone who is on a variable rate mortgage.


For a variable rate mortgage of £150,000 the rate increase will mean roughly an additional £220 will be needed each month towards the mortgage repayments.


It looks as though there may be a couple more increases of 0.25% during the next year or two. The impacts of Brexit on the UK economy may well factor in on this and it all depends on how the UK fares following the exit from the EU.

By Cheaper Accountant, Aug 2 2018 05:08AM

You may have heard the form P11D being referred to a number of times when working with your accountant or when seeking quotes from an accountant. This blog will highlight what the P11D actually is and who may be impacted by this. Not everyone will need to complete a P11D and in reality we have very few clients who are required to do so.


In summary


A P11D is a form that is submitted to HMRC to provide information about specific benefits received from an employer (your limited company, for example) other than the salary received.


You can see form the above description that the P11D form is all about benefits received. Examples of such benefits could be company assets received, payments made on behalf of the employee, living accommodation provided to the employee or cars and fuel provided to the employee.


The above requirements apply to both company director’s and other company employees.


Due dates


The P11D must be filed with HMRC by 06 July each year, proceeding the end of the tax year (05 April). The form requires details to be added for the relevant tax year just ended.


Purpose


The main purpose of the P11D is to inform HMRC of how much employer National Insurance is due on the benefits provided to employees, if any. This is referred to as Class 1A National Insurance contributions.


It is not a requirement to report reimbursed expenses on the P11D. So, if this is the only income you have received from your limited company on top of salary and dividends the you are unlikely to need to complete a detailed P11D.


No P11D due


You may be required to notify HMRC that no P11D is due. This is a fairly simple task for an accountant to complete and it is certainly something that our cheap accountants are happy to complete for you as and when needed. We don’t even charge you for this!


If you have any questions about your P11D feel free to email us at info@cheaperaccountant.co.uk


By Cheaper Accountant, Jul 5 2018 06:24AM

A PSC is an abbreviation for the term ‘Person with Significant Control’. This term or concept was introduced when the Annual Return morphed into the Confirmation Statement. We won’t go into detail about the Confirmation Statement here as we have already blogged about this in the past. What we will clarify is what criteria is used to establish if a person is classed as a PSC.


Key Principles


When considering who is a PSC the underlying principle is that a PSC is a person who the right to exert significant influence or control over the operations and management of a company. This could be a limited company or a limited liability partnership.


What about the criteria?


To establish if a person should be listed as a PSC the following needs to be considered:


1. The person holds more than 25% of shares in the company.


2. The person holds more than 25% of voting rights in the company.


3. The person has a right to appoint and/or dismiss company director’s.


4. The person has a right to exercise, or does exercise, significant influence and control over the company.


5. The person is a trustee of trust and exercises significant influence and control over the trust.


Why is this important?


There is a requirement to list all company PSC’s on the public record and to confirm the accuracy of individuals listed when completing and submitting the Confirmation Statement on an annual basis.


This isn’t optional and all limited companies, for example, need to ensure that they comply with these requirements.



If you need any support or guidance with your company PSC declarations or the Confirmation Statement then feel free to email us at info@cheaperaccountant.co.uk.

By Cheaper Accountant, May 29 2018 05:52AM

We are often asked by clients what expenses can be charged to a company and quite often this is very clear whether or not an expense is a genuine cost of business and is therefore tax deductible or not. When it comes to food expenses this distinction is not always immediately clear. This blog article has been written to inform our readers on what food expenses are tax deductible and the circumstances under which food is not a tax deductible expense.


For those who might not be clear on the accounting jargon: a tax deductible expense is any expense that leads to a reduction in taxable company profits. This in turn, reduces the amount of corporation tax due.


Entertainment of clients


A lot of business owners wrongly assume that entertaining clients through the purchasing of food is an allowable tax deduction. It is easy to see the appeal of charging such expenditure to the company.


HMRC do not accept this as tax deductible regardless of the purpose of the meeting. From the point of view of the tax man, food is not a requirement for a meeting to be held. You can simply conduct the meeting and have the same conversations without food. HMRC determine here that food is not a necessary expense.


Food for employee entertainment – Christmas party


Client entertainment is ruled out as explained above so you may naturally think that employee entertainment is also out of the question. That’s not the case!


Employee entertainment can be claimed as a tax deductible expense of up to £150 per employee. Events such as a Christmas party are considered reasonable expenses by HMRC. This could be as simple as a Christmas meal at a restaurant for all employees.


We have previously written about the tax advantages of holding a company Christmas party, where you can read more about this in more detail.


Personal or employee subsistence


You may need to purchase food when you travel for work purposes and when away from the business premises you are entitled to claim food costs in the same way as you would for transport and accommodation.


HMRC allow this type of food (or subsistence) as an allowable expense.


If you are ever in any doubt about what to claim from your company when it comes to food costs or any other business related expenditure it is always worth consulting an accountant. The accountants at Cheaper Accountant are always on hand to provide you with the advice and guidance you need.

By Cheaper Accountant, Apr 1 2018 10:45AM

A new tax year starts on 6 April 2018 and this article has been written as a timely reminder of what to note or to plan for during the 2018/19 tax year. We have published a number of blogs during the last tewlve months which were aimed at updating our readers on tax changes that they are likely to impacted by. This post will draw on some of that information whilst providing a useful list of what to consider during the new tax year.


Dividend Tax


Further charges to the dividend tax regime will come into effect as of 6 April 2018 and impact the 2018/19 tax year as the year of introduction. We previously blogged about the changes to the dividend tax that are about to come into play. The key takeaway here is that the dividend tax free allowance will be reduced down to £2,000 (2018/19 tax year) from the current £5,000 (2017/18 tax year).


We are expecting this to result in a tax increase of around £225 per annum for most of our clients.


Corporation Tax


This isn't new per se but we felt it was worth reminding our readers that the corporation tax rate was reduced down to 19% from a previous level of 20% during the 2017/18 tax year. This reduced corporation tax rate of 19% will continue to be applied to company profits during the up and coming 2018/19 tax year. This may well help to ease the burden of the dividend tax increase mentioned above.


Director Salary


One of our most recent blogs was an update on the most tax effcient or lowest tax method of receiving payments from a limited company. This article was aimed at directors who are also shareholders of their own limited company. The main thing to remember here is that you should increase your monthly salary payment to £702 a month during the 2018/19 tax year. This reults in annual director's salary of £8,424. You should then pay yourself dividends on top of this.


We do hope that you found the above summary useful. Feel free to email us at info@cheaperaccountant.co.uk if you need any help from an affordable, qualified, UK accountant.