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By Cheaper Accountant, May 3 2017 05:55AM

This article has been written as a follow on from the last time we updated the blog and provided advice to the readers of our blog on the motor expenses – full cost method. Today we are addressing our sole trader clients and this blog post has been written with them in mind. If you operate a limited company then this article doesn’t directly relate to you and a different set of rules will need to be followed and applied to what is outlined below. The personal use of a limited company asset such as a company car is a very different topic all together and crosses into the territory of a taxable benefit.


What are Capital Allowances?


Capital allowances are used to allow a business owner to deduct the cost of using an asset for business purposes, such as a motor vehicle, across a number of years. Rather than using the full purchase cost of the asset as an expense against taxable profits, capital allowances are permitted to be used to reflect the decline in value of the asset over a number of years.


Business Use vs Private Use


You will need to accurately understand and calculate your business use and private use of any asset. Continuing with the example of a motor car used during the course of business: let’s assume that it is used 50% of the time for business mileage and 50% of the time for private or personal mileage. This would result in a 50% reduction to the capital allowance claimed.


How are Capital Allowances Calculated?


You purchase a motor vehicle for £10,000 with CO2 emissions of less than 130g/km and as such qualifies for a writing down allowance of 18%. The vehicle is used 50% of the time for business and 50% of the time for personal trips.


Step One – Calculate the Full Capital Allowance


£10,000 x 18% = £1,800


Step Two – Reduce by private use factor


£1,800 x 50% = £900


Step Three – Record as an expense against company profits


The figure of £900 can be recorded as an expense reducing the sole traders’ taxable profit.


This blog has presented a simple example and explanation of the capital allowances that apply to reflect the cost of a sole trader using a motor vehicle during the course of business. This isn’t always a simple process in practice and if you need help with your capital allowances or other accounting matters then don’t hesitate to contact us.

By Cheaper Accountant, Apr 18 2017 06:00AM

Sole traders who operate a vehicle for work purposes will have a choice to make between applying the current mileage rates or applying the full cost method. This blog post will explain how the full cost method works and how to apply this in practice. We previously blogged about the mileage rates that can be used to calculate the cost of all business mileage and these details won’t be repeated here, although we have provided a link to the previous blog post above. There have been no changes to the mileage rates stated and these are the current rates.


Methods for calculating the cost of motor travel


Essentially, if you drive your own car for business you can record the cost of this and doing so will reduce the amount of tax you pay on your sole trader profits.


There are two methods available for capturing the cost of business related travel within your own car. These are:


i) the mileage method – which includes multiplying the number of miles travelled for business by the approved mileage rate


ii) the full cost method – this aims to calculate the full real cost of the business travel within your own car


Full Cost Method


The full cost method is simply as it sounds and involves calculating your full car cost or expense for the year. The following steps identify how the business cost is calculated:


1. Add together all of your car expenditure during the year, which could be petrol expenses, the costs of services and repairs or even an MOT


2. Multiply this total cost by an appropriate business percentage to give the business proportion of the total cost


Example


Let’s say that the total cost of all car expenditure for the year was £2,000 and you drove the car 50% of the time for business.


Your business expense would be: £2,000 x 50% = £1,000


Mileage Log


We strongly advise all clients who are applying the full cost method to keep a detailed mileage log to identify all business and private trips made in the car. This prevents clients falling foul of HMRC should they face an inspection at any point.


Is this the best method for me?


This is a good question and the mileage rates may be better for many sole traders due to the simplicity of the method.


However, the HMRC approved mileage rates are not adjusted for larger vehicles, such an SUV, which tend to use a lot more petrol and are often repaired with more expensive parts. If you drive a larger and more expensive vehicle you may well benefit more from using the full cost method.


Capital allowances and tax relief


The full cost method allows you to claim capital allowances for the purchase price of the car you use and this will be explained in detail in our next blog update.

By Cheaper Accountant, Apr 5 2017 06:00AM

Even though there are changes to the dividend tax due to come into effect 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 2017 to 5 April 2018) it is timely to update the readers of our blog on how much to pay yourself in salary from your limited company during the 2017-18 tax year.


The good news is that the monthly sum that we recommend you pay yourself has increased to £680 a month (up from £670 a month during 2016-17) which results in an annual director’s salary of £8,160. 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 the tax-free dividend allowance of £5,000 will apply during 2017-18.


The total director salary of £8,160 is less than the personal allowance for the 2017-18 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 £8,160 salary level.


The following gives an approximate breakdown of what tax will be due on an overall director income of £45,000.


Gross Salary £8,160

Dividends £36,840


Total Income £45,000


Dividend Tax £2,140


Total Tax £2,140


Income After Tax £42,860


The above strategy results in a take home pay of £42,860 or 95% of total income. The tax you will pay is far less than being paid in full via the PAYE tax system.

By Cheaper Accountant, Mar 9 2017 07:00AM

The Government has just announced further changes to the dividend tax system during the budget that will impact all limited company Directors who pay themselves via a combination of salary topped up with dividends. Paying a low salary to a director from a limited company and then paying dividends afterwards if a popular method of reducing income tax and in particular National Insurance charges but this due to get bit more expensive.


There have been a number of changes to the dividend tax system with the scrapping of the dividend tax credit and the introduction of new dividend tax rates. Yesterday’s budget announcement means that things are set to change yet again.


What are the changes?


The main headline change announced was a reduction in the tax-free dividend allowance from the current amount of £5,000 down to £2,000. This is a significant decrease and will result in more tax being paid by the owners of limited companies and will impact a number of small businesses across the UK.


The reduction will come into effect during April 2018.


The increased cost to a basic rate taxpayer is expected to be £225 per annum.


Why is the change being introduced?


The current Government has made changes to bring the tax paid by director-shareholders closer to, or more in line with, the tax paid by regular employees.


What should I do about this?


The impending change to the tax-free dividend allowance raises the prospect of maximising the use of the current year’s tax free allowance rather than leaving profits within a limited company.


The change doesn’t alter the current strategies for minimising tax on income extracted from a limited company as there are still significant gains with regards to reduced National Insurance payments when receiving dividends.


As with all changes to the tax system more detailed guidance will be released closer to the time of implementation and we will endeavour to update the blog to reflect this as and when needed.

By Cheaper Accountant, Mar 1 2017 12:35AM

If a limited company director is late with the statutory company filings, for example the confirmation statement and the company accounts, to Companies House this may result in the limited company being dissolved or struck off by Companies House. Once the company has been dissolved under these circumstances there a number of steps that must be undertaken to restore or reactivate the limited company.


Why has my limited company been dissolved?


Companies House generally use their statutory powers to strike off or close a limited company if they suspect that the company is no longer active. They may reach this conclusion if you:


1. Fail to file the Confirmation Statement on time and this is long overdue


2. Fail to file the Company Accounts on time and these are long overdue


What are the consequences?


If your limited company has been dissolved you are very likely to find that your company bank account has been frozen and won’t be able to access any cash held within the account.


Another significant consequence is that you as a director will become personally liable for all company debts if you continue to trade after the company has been dissolved. You will not benefit from the limited liability protection that a limited company offers.


How do I restore my limited company?


There are a number of steps that you need to take to restore your limited company and these are explained below:


1. Complete Form RT01


2. Enclose a cheque for £100 made payable to “Companies House”


3. Complete the outstanding Confirmation Statement


4. Complete the outstanding Company Accounts


5. Enclose payment in full for any fines that have been issued by Companies House which remain unpaid


6. If the company has any assets at all you must apply to the Government for a Waiver Letter to demonstrate that you have the Crown’s written consent to restore your limited company.


The form you need to complete this can be found here and you will need to enclose payment of £64.


7. Once you have all of the above documents ready you will then need to post them to Companies House at the following address:


Companies House

Crown Way

Cardiff

CF14 3UZ


If you find yourself needing to restore a dissolved limited company feel free to contact one of our accountants and we generally assist clients with this free of charge.


Note: if you need any accounts or confirmation statements to be completed then there will be a charge for us to complete this work.

By Cheaper Accountant, Feb 15 2017 07:00AM

We see some confusion from time-to-time relating to the need to register as an employer and in turn operate PAYE and complete RTI submissions to HMRC. You must register as an employer if you meet the conditions requiring registration. However, not all companies need to register as an employer and you could be paying your accountant to complete the company’s monthly payroll and RTI submissions when this isn’t actually needed.


What triggers the need to register as an employer?


If your company pays you or another employee a monthly salary of £486 a month (during the 2016-17 tax year) or more then you will need to register as an employer. This is sometimes referred to as the employer registration threshold.


The above assumes that the employee(s) in question are only employed by your company and they are not receiving a pension or other taxable benefits.


What this does mean is that you can pay yourself or another employee £485 a month and then you avoid needing to register as an employer and you don’t need to pay your accountant to operate PAYE for you and you don’t need to pay your accountant to submit monthly RTI returns to HMRC.


How do I register as an employer?


If you need to register as an employer this can be done by clicking on the following link and then simply entering all of the details requested: https://www.gov.uk/register-employer


Once you have registered as an employer HMRC will post you your employer reference number and tax office reference number. You or your accountant will need these details to complete your company payroll and RTI submissions to HMRC.

By Cheaper Accountant, Feb 14 2017 06:39AM

The VAT Flat Rate Scheme is due to change in April 2017 and the changes will dramatically reduce the benefits or gains associated with operating the Flat Rate Scheme for many small businesses across the UK. The Flat Rate Scheme has been used by many businesses a method of boosting income by charging VAT of 20% on customer invoices and then paying a lesser % to HMRC and simply pocketing the gain. This is all changing and for many businesses it simply won’t be worthwhile operating the scheme in the future.


What is the Flat Rate Scheme?


The Flat Rate Scheme is a VAT scheme that small businesses can sign up to and the aim of the scheme is to offer small businesses a simplified and less burdensome approach to calculating and paying VAT to HMRC.


The scheme allows small business to charge 20% VAT on all invoices issued to customers and to then pay HMRC a reduced percentage of the total income received. If you are a management consultant, for example, your flat rate percentage would be 14%.


This means that on a £100 invoice you would add VAT of £20 (being 20%) and you would then receive total income of £120. You would then pay HMRC 14% of £120, being £16.80, resulting in a gain of £3.20.


These gains could add up across a 12 month period.


What is changing?


From 1 April 2017 small businesses with a low cost base will be impacted by the changes to the Flat Rate Scheme. This will affect many businesses that offer services and this could be anyone contracting, freelancing or providing consultancy services via a limited company or as a sole trader.


If you spend less than 2% of your turnover on goods (not services) per annum then you will be classed as a “limited cost trader” and you will be impacted by the changes.


Furthermore, if you spend less than £1,000 per annum on goods, regardless of your level of turnover, you will be also classed as a “limited cost trader” and you will be impacted by the changes.


If you fall into any of the above categories you will need to pay HMRC VAT at a rate of 16.5% of total income from sales (or turnover).


So if you are a management consultant, continuing on from the example proved above, you will need to pay HMRC 16.5% of the £120 you receive from your customer resulting in VAT due of £19.80, which leaves a gain of only £0.20.


As you can see from the example above the changes can result in major reduction in income and it hardly seems worthwhile operating the scheme post March 2017.


If you want to discuss any of the changes further then feel free to email one of our cheap accountants at info@cheaperaccountant.co.uk.

By Cheaper Accountant, Feb 3 2017 07:00AM

We complete the annual company accounts and associated company tax return for a number of clients throughout the year. Once completed and submitted clients then often ask us how they can actually pay the corporation tax due. Making payment is a fairly simple process and this blog post will elaborate on exactly how all limited companies can make payment to HMRC for corporation tax due.


Payment methods


As you might expect HMRC offer a number of payment methods and these are details below:


Online or Telephone Banking


You can make payment via your online or telephone banking facility to the following details:


Account Name: HMRC Cumbernauld


Sort Code: 08 32 10


Account Number: 12001039


Reference Number: This is your 17 character payslip reference for the period you’re making payment for.*


*The correct payment reference can be found at the bottom of the letter posted out to the limited company requesting a corporation tax return to be submitted. You will find a payment slip at the bottom of this letter.


*You can also locate the correct payment reference through your HMRC online account if you have registered with HMRC for Corporation Tax online. Simply click ‘View Account’ and then click ‘Accounting Period’.


Online or Telephone Banking – Overseas Bank Account


If you make a payment from an overseas bank account you will need the following details:


IBAN: GB62BARC20114770297690


BIC: BARCGB22


Online with a Debit Card or a Credit Card


You can pay online directly to HMRC by clicking on the following link: https://www.tax.service.gov.uk/pay-online/corporation-tax


To complete the payment via the HMRC online payment page you will need to enter the following:


1. Your 17 character payslip reference (as explained above)

2. The total amount of corporation tax due


Cheaper Accountant is the UK’s leading affordable accountants and we offer the completion and submission of annual company accounts and company tax return from as little as £100.

By Cheaper Accountant, Jan 17 2017 12:16AM

From time-to-time we come across clients who need to submit a replacement set of accounts to Companies House. This could be for a number of reasons, but we often find that clients rush to submit something to Companies House to avoid a penalty and then when we are engaged by such a client we find that the accounts need to be corrected and replaced. This blog hasn’t been written to criticise those who submit their own accounts as there are capable and able business owners out there. The intent of this article is to simply guide the reader through the process that needs to be followed to successfully replace the accounts lodged with Companies House. There are a couple of very specific steps that must be taken to avoid the replacement accounts being rejected by Companies House.


What do I need to file with Companies House?


All limited companies are required to submit a Confirmation Statement every 12 months on the anniversary of when the company was incorporated (or opened).


So if you opened you limited company on 31 May 2016 then your Confirmation Statement would be due 31 May 2017 and then every 12 months afterwards.


All limited companies are also required to submit company accounts to Companies House within 9 months of the end of the company accounting period or financial year. The first financial year is generally 12 months following the date of incorporation and then every 12 months afterwards.


I’ve made an error in the accounts submitted to Companies House, how do I replace these?


There may be a good reason why you need amend the accounts that have already been submitted to Companies House. To file a replacement set of accounts you will need to follow the steps below:


1. You must post the amended accounts to Companies House on paper.


2. The amended accounts must be for the same period as the original accounts that were submitted.


3. The word “Amended” must be clearly displayed on the front of the accounts to avoid them being rejected as duplicates.


4. The accounts must clearly state that they:


• replace the original accounts

• are now the statutory accounts

• are prepared as they were at the date of the original accounts


5. The amended accounts must be signed by a company director.


By following the above steps the amended or replacement accounts will be successfully filed with Companies House.


We can complete and submit your accounts for you from as little as £100 so feel free to get in touch and request a free quote should you need any help with your accounting work.

By Cheaper Accountant, Jan 16 2017 07:00AM

The deadline for all 2015-16 self assessment tax returns is quick approaching and if your return is still to be prepared and submitted we urge you to act quickly on this. The final deadline for personal self assessment tax returns to be submitted to HMRC is 31 January 2017 for the tax year ending 5 April 2016. With only a couple of weeks left in the month of January (at the time of posting this blog update) time is quickly running out. Anyone who submits their return late will face a penalty issued by HMRC and it is extremely difficult to remove this once the penalty has been issued.


Do I need to submit a self assessment tax return?


In general terms if you have received untaxed income or you have very complicated tax affairs you are very likely to need to submit a self assessment tax return.


HMRC may have already written to you requesting a self assessment tax return to submitted for the 2015-16 tax year. In this case you do need to submit a return or you are very likely to face a fine.


What if I am Director of my Limited Company?


This doesn’t mean that a tax return is compulsory and the above guidance also applies in this case. In fact there are a number of limited company directors who do not need to submit a tax return.


Take a look at one of our previous blogs here for further details: Limited Company Director: Self Assessment Tax Return Compulsory?


What happens if I submit my self assessment return late?


If you submit your self assessment tax return for the 2015-16 tax year after midnight on 31 January 2017 you will face a penalty of £100. This applies even if your return is only one day late.


This fine could then increase to £10 a day if the return is not submitted within 3 months following 31 January.


You can read more about the fines here: Self Assessment Tax Returns: Deadlines and Fines if Missed


Next steps


If you are in any doubt about whether or not you need to submit a self assessment tax return you should consult your accountant now. It is best to avoid costly fines and delays with submitting your return and if you need help with this one of our accounts will be able to complete and submit your return for you. Our prices for self assessment tax returns start at only £50 for non-complex returns.