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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.

By Cheaper Accountant, Feb 28 2018 10:14AM

We are about to see further changes to the dividend tax allowance in the not so distant future, the strategy of paying yourself a low salary topped up with dividends from your limited company remains the lowest tax method of extracting income from a limited company. 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.


With a new tax year quickly approaching (6 April 2018 to 5 April 2019) it is timely to update the readers of our blog on how much to pay yourself in salary from your limited company during the 2018-19 tax year.


The good news is that the monthly sum that we recommend you pay yourself has increased to £702 a month (up from £680 a month during 2017-18) which results in an annual director’s salary of £8,424. 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 2018-19.


The total director salary of £8,424 is less than the personal allowance (£11,850) for the 2018-19 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 £8,424 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 £13,850 tax free.

By Cheaper Accountant, Jan 9 2018 06:07AM

A VAT registered business is entitled to claim VAT paid for goods and services purchased. There are also situations where a business is able to reclaim VAT paid before registration. However, certain conditions have to be met.


These conditions are listed as follows:


• The goods and services purchased before registration, must have been incurred to enable the business to produce products or provide services on which VAT is now being charged. A clear link is important here.


• Input tax can be reclaimed if the purchase of goods was incurred during the four years prior to registration.


• Input tax can be reclaimed if the purchase of services was made during the six months prior to registration.


• Reclaiming VAT paid before registration on goods or services is possible if the goods or services have not been fully consumed before the business is registered for VAT.


Example- Goods


PrintMe Ltd, an advertising and printing company, started to trade in March 2017 and registered for VAT in December 2017.


After registration, the owner makes a list of all the assets and stock on hand, including furniture, IT equipment, stock, etc. at the date of registration and reclaims VAT on its first VAT return on everything purchased between March and December.


PrintMe Ltd can only reclaim VAT on stock on hand and is unable to do so on stock items purchased and sold before registration.


Example –Services


PrintMe Ltd also paid VAT on services purchased between March and December 2017 and is able to reclaim VAT on services that have not been fully consumed. These services included:


• Rent of premises

• Telephone and Internet bills

• Equipment leasing charges


As mentioned before, reclaiming VAT on services is possible when the purchase was made within 6 months prior to its registration, meaning that PrintMe Ltd can only reclaim on services purchased from July to December 2017.


Has the service been consumed?


When reclaiming VAT on services it is not always clear if they have been fully consumed at the date of registration. A common example would be the rent of premises. It is often the case and it stands to reason that once the rental period ends (for the month or quarter) the service would have been fully consumed.


However, there are circumstances where past rental payments may well contribute to post-registration sales of good and services. Printme Ltd operated a stockroom from the rented premises where stock was held and stored until it was sold post-registration.


This changes the situation somewhat and opens the door to a likely claim for VAT incurred on the rental costs as there is a clearly identifiable link between these pre-registration costs and the post-registration sales.


The same thinking could potentially be applied to telephone or internet bills and any other services.


Meeting the conditions to reclaim VAT on services purchased prior to registration can be unclear and might require some thought and analysis. You should always consider if the service was fully consumed against goods and services supplied prior to registration. If not, then you may well have grounds to make a claim.

By Cheaper Accountant, Dec 31 2017 12:03AM

This blog post is the second of a series of articles that we will publish on HMRC’s “Making Tax Digital” or MTD. A brief introduction to Making Tax Digital was given in the first blog post published during October of this year.


The Government has pledged to a digital revolution to improve the way the tax system operates. The aim of MTD is to simplify the tax system for tax payers and improve the user experience. A fully digital tax system by 2020 is expected to address the following three objectives:


1. Removal of form filling and a closer connection to real-time information

2. Removal of time delays as the tax system operates on a closer to “real-time” basis

3. Increased access to digital accounts underpinned by the seamless upload of information


Recent Announcements – Qualifying Threshold


After the review of the original Making Tax Digital proposals, the Government announced during July 2017, that businesses with turnover exceeding a specified threshold will need to comply with the Making Tax Digital regime from April 2019 but for VAT only. This threshold is in effect linked to the VAT threshold and means that the MTD requirements apply to businesses with turnover above the VAT registration threshold (currently £85,000). Companies with turnover below the VAT threshold are not obliged to comply with MTD, all such businesses do have the option of complying with MTD if they wish to do so.


The scope of Making Tax Digital will not go beyond the initial scope and threshold mentioned above until the system has been evaluated by the Government at least a year after implementation (April 2020). This means that small businesses and landlords will have ample time to make the necessary steps to keep digital records. This could still lead to all companies being drawn into this regime at some point in the future. We’ll certainly keep you updated on this.


What does this mean for me?


From April 2019, VAT registered businesses with turnover above VAT registration threshold (currently £85,000) will have to comply with the following:


1. Records will be kept digitally for VAT purposes only

2. Use compatible software (or an app) to submit their VAT return information to HMRC


Why is the Government introducing this?


According to the latest tax gap figures published by HM Revenue and Customs (HMRC), many businesses have complained about the complexity of getting their tax right. Mistakes and errors are found in every sector and they account for over £9 billion lost annually in tax.

Making Tax Digital aims to reduce errors and mistakes by introducing a modern digital service platform that promises to, not only reduce the tax gap, but also reduce businesses’ costs and the need for HMRC to intervene and make corrections. Time will tell how much this impacts businesses and what the extra burdens, if any, will be.


The idea behind migrating the accounting records to a digital platform, will allow businesses (including self-employed and landlords) to keep track of their income and expenditure digitally. This promises to make the quarterly reports to HMRC an easy task by using specifically designed software (or an app), which will be available to use from April 2018.


This modern digital revolution aims to improve the tax payer user experience by helping the tax payer to get their tax right first time. HMRC is expecting that many businesses that are not obliged to comply with this reform by April 2019 will still choose to do so. The government anticipates that companies will see the benefit of keeping their records digitally, especially when making quarterly updates, which will prevent errors and mistakes commonly made with manual calculations. The compatible software will include nudges and prompts that will help reduce common mistakes in order to get the calculation right first time and avoid HMRC’s costly and unpleasant interventions.


The key benefits of Making Tax Digital, as stated by the Government, are as follows:


• Businesses will always know their current position when it comes to tax (closer to “real-time” picture)

• Tax information will be accessible in a single place

• Businesses and agents/accountants will be able to work more collaboratively


The recent announcements highlighted above mean that a large number of clients will remain unaffected by Making Tax Digital as it moves into the first phase of implementation. We suspect that the Government will seek to expand the remit of MTD in future years but only time will tell.


We remain committed to assisting all clients affected by the introduction of MTD and we will strive to provide cost effective accounting solutions that allow all clients to meet their ongoing legal accounting requirements.

By Cheaper Accountant, Nov 24 2017 07:19AM

We often receive questions from clients new and old about the difference between operating as a sole trader and operating via a limited company. In particular, we are often asked to provide guidance on what taxes apply to a sole trader and how much each client can expect to pay in tax. This blog article will help to define what a sole trader actually is and who would be considered a sole trader. The article will then provide guidance on what specific taxes apply to a sole trader as there are differences when compared to a director of a limited company, for example. It’s not the intent of this article to focus on limited company and company director taxes.


What is a Sole Trader?


A sole trader is probably the simplest company structure that you can operate within the UK and there are less filing and accounting administration requirements associated with operating as a sole trader when compared to other company structures, such as a limited company.


A sole trader effectively operates their business in their own identity and remains personally responsible for all business liabilities and is taxed personally on all business profits. An example of a sole trader could be a market stall trader. This is very different to a limited company, where the company itself is considered a separate legal identity and in turn the limited company itself is liable and responsible for all business liabilities.


As a sole trader all business profits are considered by yours whereas with a limited company the company profits belong to the company. A sole trader is free to access business profits at any time whereas a limited company may pay a salary and dividends to company directors and shareholders.


Sole Trader Taxes


A sole trader is taxed on all business profits (sales less allowable expenses) and this is transacted via the sole traders’ personal self-assessment tax return. A sole trader will complete the Self Employed sections of their self assessment tax return and this is correct definition of self employed. The business profits are taxed as income and income tax and national insurance applies to sole traders.


It is worth pointing out that a sole trader can withdraw cash from the business and this does not lead to any tax being due. This is because the cash already belongs to the sale trader with taxes paid on the overall business profit or loss.


Class 2 and class 4 National Insurance contributions apply to a sole trader. Class 2 NI is generally charged at £2.85 a week whereas class 4 NI’s are calculated as 9% of profits between £8,164 and £45,000 with a rate of 2% applying to profits from £45,000 upwards (this operates in a similar fashion to an income tax bracket).

By Cheaper Accountant, Oct 30 2017 06:03AM

We have been preparing a number of company accounts and company tax returns for the limited companies of our clients with company tax years ending post April 2017. These clients are now starting to feel the benefit of the reduced corporation tax rate. Yes that’s right, you may have missed it but the corporation tax rate for limited companies was reduced by Government with effect from 1 April 2017 and further reductions to this tax rate or planned in the coming years.


What are the changes to the Corporation Tax Rate?


The UK Government reduced the corporation tax rate which applies to limited companies down from 20% to 19%. This change took effect on 1 April 2017.


All limited companies with an accounting year ending after April 2017 will start to feel the benefit of this reduction in tax. We have already completed company tax returns for a number of clients who were pleasantly surprised to see that the corporation tax due was less than what they had expected, with many clients still expecting and planning for a corporation tax take of 20%.


What future changes are expected?


The UK Government announced during the Summer Budget of 2015 that they would reduce the corporation tax rate down further to 18% starting from 1 April 2020. This is further good news for the owners of limited companies.


However, the most recent plans here are even better as the UK Government subsequently announced during the 2016 Budget that they will reduce the corporation tax rate even further to 17% from 1 April 2020.


This is great news for all clients who operate a limited company and adds further weight to support the decision of choosing the limited company structure.


We’ll certainly keep you on top of any changes here regarding future plans for the corporation tax rate so watch this space for future updates and we will also add a blog post each year when the new change is implemented as a gentle reminder.

By Cheaper Accountant, Oct 1 2017 07:43AM

This blog post is the first of a series of artilces that we will publish on HMRC's "Making Tax Digital" or MTD. There has been a number of developments in this area during recent months and this series of articles that will be published on our site over the coming days and weeks will focus on introducing MTD, what MTD means for you the reader and will provide details and guidance on the most up-to-date developments relating to MTD.


Introduction to Making Tax Digital


The Government has committed itself to a digital revolution and to fundamentaly reform the way in which the tax system operates. This is a somewhat ambitious agenda which initially targeted the year of 2020 for full implementation. The aim of MTD is to simplify the tax system for tax payers and effectively improve the user experience for millions of taxpayers. A fully digital tax system in 2020 is expected to address the following three aims:


1. Removal of form filling and a closer connection to real-time information;

2. Removal of time delays as the tax system operates on a closer to "real-time" basis;

3. Increased access to digital accounts underpinned by the seamless upload of information.


This may mark the end of the tax return for both individuals and businesses and only time will tell. Businesses and individuals can expect to file and update electronic records held with HMRC at any time and in real time. The aim is to collect tax quicker and more efficiently. Rather than making annual tax payments, companies and individuals are likely to need to pay tax on a more regular basis just like you would if you fell wihtin the PAYE tax system. The regular updating of information filed with HMRC is likely to come at a cost. This is where you may wish to engagement a more affrodable accountant for your accountancy work and we can certainly help you here.


It was initially stated that a number of businesses, including the self-employed and property landlords, may be required to update HMRC at least quarterly from April 2018. This appears to be quarterly business accounts which will underpin quarterly electronic tax calculations (possibly replacing the annual tax return) with quarterly payments of tax being likely. These quartely updates are expected to be completed electronically and online. This seems to be similar to the Payroll Real Time Information and the changes that were made to the filing of employer payroll information.


Small business owners will need to ensure that all bookkeeping is performed on a regular basis so that quarterly filing requirements are not overlooked. You are likely to need an accountant to help you with these new quarterly duties and an accountant could be needed to submit the lodgement to ensure that everything is accurate and correct from a tax perspective. This may result in four significant payments of accountant fees and small business owners will need to be vigilant when engaging an accountant as these fees could certainly mount up across a twelve month period.


Like I said earlier, this is the first of a series of blog posts on the topic of making tax digital and we hope that you find this information useful and it provides food for thought as you move forward wih your company accounting.

By Cheaper Accountant, Aug 30 2017 07:00AM

This blog post will take a look at the Limited Liability Partnership company structure and touch upon the pros and cons of operating this type of company. You may notice that a number of legal firms and even some accountants use the acronym LLP after their names and this company structure is often popular amongst certain types of business. An LLP does have its benefits but at the same time an LLP may not be the best option for everyone.


The LLP company structure is designed for businesses that usually operate as a traditional partnership. Examples of such businesses are accountancy firms, solicitors, dentists, vets, architects, surveyors, GP’s and other such professional services firms.


Limited Liability


One of the main benefits of the LLP structure is the “limited liability” protection offered to the members or partners of the LLP. This means that the individual partners are not personally liable or responsible for business debts and their personal assets (such as the family home) remain protected during the normal course of business.


Taxes


An LLP is very similar to a traditional partnership when it comes to paying taxes on company or business profits. It is not the company or the LLP that is taxed on the profits generated but instead each partner is taxed on their share of company profits via a self assessment tax return.


Benefits can arise from this when the partners within an LLP live and operate the LLP from outside of the UK and as such are not deemed to be UK tax payers.


The appeal of the company not being taxed on its profits, which is the opposite situation to limited company, depends on the personal circumstances of the partners involved with the company. This can be a relatively complex area and professional tax advice should always be sought.


What is needed to set-up an LLP?


1. At least two members are needed to form an LLP and these will be known as the “designated members”.


2. An LLP member can be an individual or a corporate body (e.g. a limited company).


3. An individual must be at least 16 years old but they are not required to live within the UK.


4. A UK address must be provided as the official LLP registered address.


If you need any advice or you are thinking of setting up an LLP then feel free to contact one of our accountants via email to info@cheaperaccountant.co.uk. We complete LLP accounts and LLP tax returns as well as member self assessment tax returns for very competitive fees. Request a free quote and see how much you can save on your current accountant fees.

By Cheaper Accountant, Jul 31 2017 07:00AM

It’s not usual to be approached by a prospective client who has realised that their limited company’s Confirmation Statement is overdue. This happens from time-to-time and given that there is only a somewhat short window of opportunity to submit the confirmation statement on time we can understand how some people may miss the filing deadline. This blog post will clarify a couple of misconceptions that seem to float around as well as highlighting the more specific consequences of submitting the confirmation statement to Companies House late.


What is the Confirmation Statement?


The confirmation statement in summary is simply an update (or confirmation) of the company details, such as shares issued and the holders of shares in the company. One of our previous blogs introduced more details on the confirmation statement and we even provided a demonstration video on how to complete the confirmation statement. So we won’t go over the same ground again here.


We would like to make it very clear here that the Confirmation Statement is not the Annual Company Accounts. This is the first misunderstanding we sometimes see. The confirmation statement is a very separate and completely different return to the company accounts. Now that the annual return has been rebranded and in turn renamed the confirmation statement, we are hopeful that this will be clearer moving forward.


What happens if my Confirmation Statement is submitted late?


Companies House give a limited company only 14 days to file the confirmation statement and this is an annual task. Given the short timeframe the situation of submitting a late or overdue confirmation statement can arise.


The great news for anyone concerned about this is that there are no late filing penalties for an overdue confirmation statement.


The confirmation statement must always be filed however, even if this is overdue, as failure to file the confirmation statement is a criminal offence. If you file it too late Companies House may strike off the company (close the company) for non-receipt of the confirmation statement.


So, if you currently have an overdue confirmation statement then there is no need to panic and you don’t need to worry about incurring a fine but we do urge you to act on this. Why not request a free quote via our homepage as we charge only £30 to complete and submit the confirmation statement for you.