November 21, 2017

How much tax will you need to pay in January?

 

Tax, Weliington Consulting, Accountant

How much tax do I need to pay?

 

Every year I hear the same question:

 

‘Where am I going to get the money from to pay my tax bill?’

 

 This is closely followed by:

 

‘How much tax do I need to pay?’

 

The truth is, that from 6th April 2017 the calculation could have been done to establish how much tax you are required to pay. You may have had to wait for statement of interest from savings accounts, P11d forms, if you receive benefits from your employer, or rental statements, if you use an agent to manage your rental properties, but the truth is that by now you should have all the information available to complete it today.

 

If you haven’t, you need to ask ‘why not?’ because…

 

If you run a business, you need to know how profitable it is, where costs can be saved or what investment is needed. You need to be in charge. Leaving the calculations until after the end of the year is not good for sustainability. How do you know how much money to put aside for tax, unless you know what profits you are making? How do you know that you are charging enough to cover the costs, including paying you, unless you know what income and costs you have? If you are not up to date now, when will you be up to date?

 

Note: If you prefer to fill in a paper tax return, you have until 31st October to make sure it arrives with HMRC, otherwise it will have to be done on-line.

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Have you got 31st July in your diary?

tax, self-assessment, HMRC, 31st July, accountant, herefordshire, monmouthshire, gloucestershire

Have you got 31st July in your diary?

 

We may all have put this matter to one side, filing the reminder letter in the unshrinking in-tray, but staying on top of our taxes is vitally important to all small businesses and those who are self employed.

The key is to not fear them or forget them!

 

I know you are busy, time so often our enemy and much better spent delivering our goods and services, but time has to be taken to keep our business affairs in order and avoid any nasty penalties. And if you don’t have the time, engage with someone who has both the time and the expertise.

Diary dates.

So, let’s start by reminding ourselves of the key dates for your diaries regarding taxes:

  • 5th October – registration date for individuals who are self-employed
  • 31st October –paper tax returns completed submission deadline
  • 31st January – online tax returns submission deadline
  • 31st January – deadline to pay taxes you owe
  • AND if you paid more than £1,000 tax on 31st January 2017, you may have more to pay by 31st July 2017.

How do you know if the July 31st deadline is applicable to you?

HMRC state this: ‘If you are self employed and earn enough to pay over £1,000 in tax and you have not already settled all tax due for the year to 5th April 2017, you will need to make a payment by 31st July this year.’

Also, if you have rental income or large amounts of investment income such as dividends, you may also be affected.

There is further information on the gov.juk website, or if you are unsure talk to your/an accountant.

You still have time.

If you haven’t already completed your tax returns, don’t panic! You can still avoid HMRC’s late filing penalties just start taking action now.

  • Gather together all your receipts, bills, bank statements, mileage logs, sales invoices and takings summaries
  • If you have already entered these into a spreadsheet or accounts software, such as QuickBooks Online, well done. It will make your life easier, and you will have a better handle on how the business is doing.
  • Gather other details of income such as bank interest, rental income (and related expenses), P60s and P45s and P11ds from any employment or pension you have. Also pension payments if you can deduct those from your tax bill
  • If you are married, discuss with your spouse whether there is benefit in reallocating some of the personal allowance to the other spouse (10% can be moved although some rules apply)

Decide if you are going to feel brave and prepare your own tax return. If so

And if you would rather have help making sure you are declaring everything and claiming all you can, call me and we can get things sorted.

Penny Lowe, Wellington Consulting

Visit my website to find out more about how I can help you and your business >

Business Advice from Berkshire – Would you accept Cash ?

Would you accept cash…

And not put it through the books? With all the current discussion concerning tax evasion and tax avoidance there are still grey areas. You may say that the example above is clearly evasion i.e. personally pocketing money which correctly should be accounted for by the business and tax, and possibly VAT, paid over to HMRC.

Birmingham-20121029-00114What if the cash received is for something other than you usual business activity. An electrician takes some rubbish down to the tip for a neighbour and gets paid for it. Is that taxable income? If he trades as a sole trader, all activities should be included in his tax return – so yes. But is this fair?

If you are sticking to the rules, fairness does not come into it. The rules say that international firms can recharge for services within the group which then means there may be very little income left to charge under the UK tax regime – is this fair?

How well do you sleep at night? Does it matter what others do if you are happy with your decision and any consequences? Using an accountant will help you understand what the rules are. As with speeding, whether you stick to the rules is up to you. Is your accountant a passenger in your car, keeping an eye on your speed, or did you leave them at the last stop and are keeping him in the dark as to what speed you did?

Tax evasion is breaking the speed limit, tax avoidance is using the dual carriageway bypass to get to your destination faster. When you are Book coverpreparing your accounts or submitting your tax return, which route do you take to your destination?

Post your thoughts below

Poor Planning leads to..

Have you ever worked late into the night? When did you last feel you could have done a better job if you had had more time? Have you ever missed a deadline? Its all about planning.

Recognising what needs to be done and by when allows you to prioritise your tasks. Your finances should be planned in the same way. You have limited time and know it is down to you how you spend it. Treat your business funds in the same way.

You should have two types of plans which are different views of the same thing. One is a budget which sets out your planned sales, costs of sales and expenses. This may be by month in the coming year and annually for the next couple of years. In addition, you also need a cash flow statement. As it says, this is cash flowing in and out from the business with dates. This type of plan will keep you within overdraft limits, or indicate when you can take a dividend from the business (remembering to leave the money for the tax bill in the business).

A simple example of the difference is sales in a budget may show as £50,000 per month for three months. If your terms are 30 days, the cash flow would show nothing coming in during month one, £60,000 in months two, three and four and cash out of £20,000 also in month four. Where do these figures come from?

The nil in month one is down to £50,000 of sales but no one has paid you yet. Months two, three and four are £60,000 per month being £50,000 of sales plus 20% VAT) paid by your customers for sales in months one, two and three. What about the £20,000 out. This is the VAT you have collected on behalf of the taxman and received in months two and three. That is what I mean by leaving some money in the bank. Don’t forget, you have another tax to save up for as well, being the tax on business profits. Although not due yet, this would be another £30,000 due to go out. (being say 20% corporation tax on £50,000 for 3 months).

With these chunks of money due out, it is important to know, not only what you current bank balance is, but what you need to keep money back for. Even if it is only a rough idea, planning is better than penalties.

Need any help? Contact me.

How to reduce your Tax Bill

As we approach the end of the tax year – 5th April 2013, what can you do to reduce your tax bill? Although you have left it a bit late, you still have a couple of days to act.

If you have a pension scheme and some money to spare, you could pay some extra money into your pension scheme. Just remember to tell your accountant that you have made extra payments. If you do your tax return yourself, you need to include this extra payment.

Another option is to invest some money in an ISA. Although the rates of interest are not high, you will not have to pay tax on the interest earned, so if you are a higher rate tax payer, this could almost double the actual rate of interest.

If your year end is 31st March, have you declared all the dividends the company can afford to pay? This is where you need to monitor your profits as there is no point putting yourself into the highest rate of tax, when this is due to reduce from 6th April 2013. If you are not sure, speak to your accountant and tell them you need to know whether to do something before 5th April.

Other lesser ways to reduce your tax bill is to ensure that your business is being charged for all the amounts you pay out on its behalf. A client today, realised that she hadn’t charged the company for the mobile phone she used for business for the last 6 months. I personally know I need to put a mileage claim in for last month and this. How up to date are you with such claims? If you do not put your claims in, not only will your business pay more tax, but the costs you consider for your business will not be accurate and may distort your planning and cash flow plans.

If you haven’t done so before, sit down this weekend and make sure that you – and any other member of staff eligible – have caught up with your expense claims

Are you worried about RTI? Do you know what it is?

As from 6th April 2013 all employers will need to tell HMRC every time they pay someone. This is known as Real Time Information (RTI). Whether it is the usual staff getting their monthly pay, or a casual member of staff getting cash for helping you out for a couple of days, the taxman needs to know.

If you run your own payroll, the chances are you are using software to do the calculations. It is likely that it will also file the necessary forms on line for you but it is worth checking.

The logic behind this change is that HMRC will be able to link multiple employments together as they are happening and make sure the correct tax code is being used. This should stop so many employees getting bills sometime 3 years after the tax year in question. The other benefit to the taxman is they know how much you should be sending them each month so, if you don’t pay, they know how much to chase you for!

The emphasis will again be put on the employer to ensure that the employee is entitled to work in the UK. For new employees, HMRC suggest seeing a copy of the passport to confirm name, date of birth and help towards a right to work in the UK. If a potential member of staff does not have a passport, HMRC suggest a birth certificate as an alternative. That is all very well unless the female in question has got married. How do you then match the name to the individual without marriage certificates etc? There are alternative documents that can be produced, but does someone turning up for a day’s work carry these papers about as well as their National Insurance number – they may need to in future.

Once the individual is set up within a payroll system, the operation should be straightforward. It’s a bit like sending HMRC a copy of the payslip each time you work out pay as well as giving one to the employee. If it is a casual worker who gets paid cash at the end of the day, it is up to you to work out the correct figure to pay. In a very few cases such as this one, you can send the copy of the payment details through to HMRC within 7 days of making the payment. Most other cases you need to tell them on or before the date the payment is made.

How many hours do you work ?

As part of the new regime that HMRC are bringing in for payroll know as RTI (Real Time Information) you will need to declare whether each employee does under 16 hours, 16 – 30 or over 30 per week or is an occasional worker. As a business owner, you may well do over 30, but how many do you get paid for?

 

At minimum wage (currently £6.19 per hour) you would need to be taking a salary of £9,657 to meet this hourly rate on 30 hours per week. If you are a director of a company, it may be that your company recognises your efforts by paying you a dividend depending on the profitability of the company. Even if it does not have the cash to pay you at the time, it may reserve the funds by adding it to the amount the company owes you. This is not uncommon. Dividends do not attract National Insurance whereas salary does.

 

So, is this a ploy by HMRC to ensure that company directors are getting a fair wage or will they start chasing those companies that primarily pay their directors by way of dividends on their shareholdings?

 

The good news is there is another box to tick which says the hours are unspecified. As a director you may choose how many or how few you work so this sounds like a more accurate answer.

 

If you employ your children during the school holidays to create PowerPoint slides, help with your web site, proof read the book or reports you have written, they would be counted as ‘occasional’ workers so must go on the payroll, but you don’t have to pay them every month. Remember this is an allowable expense of the business and will reduce the tax bill whether you are a sole trader or a limited company unless – of course – you pay them a huge salary. The minimum wage for under 18s is £3.68 per hour.

What will you do differently in 2013 ?

I have just finished completing my mileage claim for last month. If you drive for work, how do you keep your mileage log up to date – and remember to put the claim in?

 

Whether you are employed as a director of your own company, employed by someone else, or are a sole trader or partner who claims mileage, you need to keep a log of miles you do for work. I recently saw a client who was paid 40p by his employer. He was good at keeping a log but did not realise that, if he did under 10,000 claimable miles a year, he could claim the difference between 40p and HMRC approved rate of 45p. By claiming 5p times 9,000 miles he could claim an expense of £450. As a higher rate tax payer, when you multiply this by 40% it works out to £180 of tax he could get back. If he was reimbursed at 25p, the refund would have been £720 of tax – a nice payout.

 

The other thing to check is that your car insurance covers the business miles you do. A simple check and often there is no extra charge to have business listed on the certificate.

 

So, whether you run your own business, or are employed, it is worth noting the mileage and other expenses you pay out on and ‘forget’ to log at the moment. The important point to remember is the more legitimate expenses you claim, the smaller your tax bill and the more money you will have.

 

May 2013 bring you every success, happiness and money.

What are you planning for next year ?

Many people start a year with New Year’s resolutions, but they often do not achieve them. Are you going to be one of those?

I would suggest the main reason for failing to achieve is that you can see the goal you want to achieve, but don’t plan a route to get there. If you want to travel to any destination, you wouldn’t just expect to arrive without the journey. How you choose to travel is a matter of for you. The decision will be based on research, preferences and practicality – and possibly budget.

One question I have long asked myself is why do many business owners put more effort into choosing a car than the decisions that affect their business? So, my simple request to you is decide where you want your business to be this time next year and then put the effort in to planning the route including check points to ensure you are on track. If you do this you will get there.

Happy Christmas and a Successful 2013

What is your company doing for its employees this Christmas?

If you are taking them out for Christmas dinner, you can claim up to £150 including VAT without having to declare it as a benefit. However, if you wanted to give them cash, or something they could exchange for cash, you would need to put it through the payroll and pay tax and NI on the amount.

 

So, if it a Christmas bonus they get, I am sure they will appreciate it especially if you pay the tax and NI due. If you simply want to but them a small gift, that is fine – especially if it is a turkey. That is definitely tax allowable.

Can we help ?

If you send your employees and clients Christmas cards, this is another allowable expense – so is the work’s Christmas tree. If you find some of the shopping is combined with personal shopping, this is not a problem. Ask the shop to prepare a receipt for your business. If this is too much hassle and you have a till receipt for combined personal and business items, just circle and claim for the business costs and keep the receipt. The business then owes you the money by way of an expense claim or payment out of the business funds. This type of split shopping trip is not just true at Christmas. If you buy you office milk and paper from Tescos with the week’s shopping, keep the receipt and mark what is business and make sure you claim.

 

If you are a very small limited company, i.e. just you with help from the family, don’t forget you are an employee and entitled to your Christmas lunch. Have a good one.