Category: ‘Tax’

McCleary & Company Ltd., incorporating JR McKee & Co. Annual Budget Breakfasts

Thursday, February 23rd, 2017

BUDGET BREAKFAST SEMINARS

LURGAN & LISBURN

On the 8 of March 2017, Philip Hammond will present the budget, the last to be held during springtime.  During this time of political uncertainty in Northern Ireland, it is even more important to be well informed about any changes in legislation.

McCleary & Company and Lumen Financial Planning to do the hard work for you and go through the budget to see what is applicable to business owners in Northern Ireland.

 

Jason Holmes from Lumen Financial Planning will cover all the changes in pensions and investments.

Warren McCleary from McCleary & Company Chartered Accountants will cover all of the other important changes in taxation.

If you would like to attend the Budget Breakfast, 9:00am breakfast for 9:30am start, please click the link below-

 

LURGAN

FRIDAY 10 MARCH CIDO INNOVATION CENTRE                              

Registration Link

 

LISBURN

THURSDAY 16MARCH LAGAN VALLEY ISLAND CENTRE                                

Registration Link

 

 

 

2014-15 Tax Guide

Monday, February 23rd, 2015

Now that we have passed the deadline for submitting 2013/14 Self Assessment Tax Returns, it is time to turn our mind to pre-year end tax planning for 2014/15!

It is always easier and more effective to plan during a tax year, by 6th April your options will be very limited.

 

We have just published or 2014-15 Tax Guide, download your copy here 2014-15 Year End Tax Guide

The 2015 Budget – What Does it Mean to You?

Monday, February 23rd, 2015

On the 18th March George Osborne will deliver his last budget before the election, what will it mean to businesses in Northern Ireland?

 

We will be running our usual post budget seminar on Friday 20th March to address this issue, to book your free place simply click here or email info@mcclearyaccountants.com .

 

As usual, the venue is the Lough Neagh Discovery Centre at Oxford Island.  The day will start with Bacon Rolls and coffee at 9.00am for a 9.30am start.  We will finish at around 11.00am with Tea and Scones, so even if it’s a boring Budget, at least you’ll be well fed!

 

Our Budget Seminar is usually well attended and we look forward to seeing many of our clients and friends of the firm on the day.  As always our event is open to anyone, so feel free to bring colleagues and friends, all we ask is that you register them, so that we have enough food to go round.

 

REGISTER HERE

VAT accounting schemes

Monday, August 11th, 2014

This guide looks at how the 3 main accounting schemes work and how they can help businesses.

 

Special VAT accounting schemes for small businesses have been available for a number of years, but they are still underused. The 3 main schemes are: cash accounting, annual accounting and the flat rate scheme.

 

The cash accounting scheme (CA)

Cashflow can often be a headache for businesses. Were it not for this scheme, VAT would be due based on invoice dates, which means paying HMRC on unpaid invoices at the end of each period. CA enables businesses to account for VAT on the basis of payments received and made instead.

 

Input tax not being deductible until purchase invoices are paid is a disadvantage, but as the norm is making a profit, the scheme is usually beneficial.

 

CA can be used by businesses with an expected taxable turnover not exceeding £1,350,000 in the next 12 months. The business must also be up to date with its VAT payments or have agreed a plan with HMRC for clearing any outstanding debts.

 

The key factor in deciding whether or not to use CA is the period of time between issuing sales invoices and receiving payment – the longer the gap, the stronger the case for CA. Clearly, it would also not be advantageous for repayment traders to use it where input tax regularly exceeds output tax.

 

Other advantages are:

 

  • simplified accounting, in that well-analysed cash and bank records are usually enough
  • no need for VAT relief on bad debts because it is not paid to HMRC up front.

There are other conditions for using the scheme, such as having to use it for the whole of a business and normally staying in it for at least 2 years, but these are not usually a burden.

 

Businesses can leave the scheme at any time if they are not benefiting from it or struggling with the accounting requirements. Records must be kept in such a way that invoices issued and received can be easily cross-referred to payment dates but that is usually straightforward.

 

It is not compulsory to leave the scheme and revert to accruals-based accounting until annual taxable turnover reaches £1,600,000. This built in 25% tolerance gives flexibility for growing businesses. On leaving the scheme, all outstanding tax must be paid within 6 months of the leaving date.

The annual accounting scheme (AA)

AA was introduced at the same time as CA and has the same turnover thresholds for joining and leaving it. It involves making pre-agreed payments on account and completing only 1 VAT return per year. So its purpose is to aid cashflow and budgeting.

 

For those wishing to join the scheme who have been VAT registered for less than a year, the taxable turnover for the purpose of the scheme is usually the amount shown on the application to register. In any case, the value of capital asset sales or anticipated sales is ignored.

 

An application form must be completed in order to join the scheme. Businesses that apply to register for VAT online can apply online to use AA if the application is submitted at the same time.

 

Withdrawal from the scheme is possible at any time by application in writing to the business’s local VAT office.

 

Benefits of AA:

  • only 1 VAT return is required each year, with an extra month for submission
  • the return can be prepared at the same time as the annual accounts
  • cashflow is known in advance
  • monthly payments spread the load
  • it simplifies the operation of retail or partial exemption schemes.
Sometimes the regular payments set for a subsequent year can be unreasonably high but, if the difference is significant, a reduction can be negotiated. Seasonal variations can also have an impact either way.

 

The regular budget payments are usually:

  • 9 monthly interim payments of 10% of the previous year’s VAT payments (or 10% of their estimated payments if registered for less than a year), commencing on the last day of the fourth month of the VAT year, or
  • 3 quarterly interim payments of 25% of the previous year’s VAT payments (or 25% of their estimated payments if registered for less than a year).

 

The monthly method is the default unless the business specifically requests quarterly payments.

 

Payments can be adjusted to allow for any expected changes in turnover and trading. The annual return then shows actual VAT due for the year then ending and the balance, if any, of that amount, less the budget payments already made, is due no later than 2 months after the return date. Payments must be made by direct debit, or by a choice of electronic payment methods.

 

Failure to comply with the scheme rules, or general non-compliance with other VAT rules can result in expulsion from the scheme.

The flat rate scheme (FRS)

FRS was introduced more recently than the other 2 schemes and has a much lower turnover threshold for eligibility, meaning fewer businesses can use it.

 

Its objective is to reduce the cost of VAT compliance. It does this by applying a fixed percentage to gross income, which builds in an allowance for deemed input tax, thus avoiding the need for detailed records of purchases and expenses. Invoices are still issued and received as normal. It is just the VAT accounting which is simplified.

 

FRS is available to businesses that expect their VAT exclusive taxable turnover (excluding expected sales of capital assets) in the next 12 months to be no more than £150,000. As with the other schemes, there is a tolerance threshold meaning businesses using the scheme can continue to do so until their taxable turnover increases to £230,000.

 

As the fixed percentage applies to all income, the largest advantage is to eligible businesses making only standard rated supplies. Although the fixed rate is designed to allow for typical zero-rated and exempt supplies by the type of business (as well as to give a set credit for input tax), users may be disadvantaged if they make a lot of that type of supply. It is always worth comparing the scheme against normal VAT accounting first, to ensure there is a benefit.

 

A table of FRS rates is available from HMRC, which is usually only changed if there is a VAT rate change. It is important for the user to ensure their business has the correct classification. If their activity includes supplies in 2 or more sectors, the percentage to be used is that appropriate to the main activity as measured by expected turnover in the year ahead.

 

Joining the scheme is by completing an application on form online (if the business used HMRC’s online services to register for VAT) or by downloading the form and posting it to HMRC.

 

Contact us if you are considering registering for one of these schemes.

When should you contact HMRC?

Friday, August 8th, 2014

A cynic might say that you are required to contact HMRC when you are likely to owe them more money. Realistically, the opposite is also true: you should advise HMRC of any changes that could reduce your tax position.

The following notes are extracted from HMRC’s website and set out their requirements. You’ll need to tell HMRC if you:

  • get married or form a civil partnership
  • start getting a second income
  • become – or stop being – self-employed
  • start or stop getting company benefits – like a company car or medical insurance
  • start getting taxable benefits

You’ll also have to let HMRC know if other income that you get – like savings or rental income – increases or reduces.

All these things and more can affect the amount of Income Tax that you have to pay.

Marriage or civil partnership where one partner was born before 6 April 1935

Tell HMRC if you get married or form a civil partnership and at least one partner was born before 6 April 1935 – you may be eligible for the Married Couple’s Allowance if you pay tax.

If you get divorced or your civil partnership dissolves or you separate and you were getting the Married Couple’s Allowance you will no longer be eligible so you need to let HMRC know.

Death of a spouse or civil partner

If your husband, wife or civil partner dies you need to contact HMRC if either of the following applies:

  • you are claiming Married Couple’s Allowance
  • either of you claims Blind Person’s Allowance and some or all of this was transferred to the other spouse or civil partner

Starting/stopping self-employment

You must tell HMRC that you’re self-employed as soon as possible – even if you already fill in a tax return each year. If you don’t tell them as soon as you begin self- employment you may have to pay an initial penalty.

Starting/stopping to receive company benefits

If you start to get taxable company benefits you should tell HMRC right away so that you don’t get a large tax bill at the end of the year. Employers don’t have to tell HMRC about any company benefits you get until the end of the tax year, unless it’s a company car. HMRC will adjust your code number and start collecting all or some of the extra tax sooner. If you get a company car or change your company car, you only need to report the details to HMRC once you have the use of the car.

You should also tell HMRC if you stop getting taxable company benefits. They can change your tax code and make sure you don’t pay too much tax.

Starting/stopping state benefits

If you start or stop getting state benefits it may affect your tax bill. The sooner you get in touch with HMRC, the sooner they can adjust your tax code to make sure you always pay what’s due.

Reporting changes to your income

Changes in the level of certain types of income you receive needs to be communicated so that you don’t under or over pay tax.

And finally, if you change address

If you change address it’s important to let HMRC know – even if you pay some or all of your tax through PAYE and have already told your employer or pension provider. Under the Data Protection Act they can’t pass on your new address to HMRC.

New Publications on Website

Monday, August 4th, 2014

Every month we add two technical publications to our website.  This month’s publications are:

  1. VAT Schemes http://mccleary.wpengine.com/wp-content/uploads/2014/08/mcclearyandcompanyltdPWP_APU_Aug14_vatschemes.pdf
  2. August 2014 Economic Update http://mccleary.wpengine.com/wp-content/uploads/2014/08/mcclearyandcompanyltdPWP_APU_Aug14_economicupdate.pdf

Inheritance Tax

Thursday, July 31st, 2014

Inheritance Tax (IHT) is due when a person’s estate (their property and possessions) is worth more than £325,000 when they die. This is called the ‘IHT threshold’.

The current rate of IHT is 40% on anything above the threshold. The rate may be reduced to 36% if more than 10% of the estate is left to charity.

Who pays Inheritance Tax

Usually the executor or personal representative for the person who has died pays IHT using the funds from the estate.

Trustees are responsible for paying IHT on trusts, which are a way of looking after assets (money, investments, land or buildings) for people. A trustee is a person who looks after the trust.

If you’ve got an inheritance or a gift from someone who has died you only owe IHT if their estate is more than £325,000 and either:

  • it says in the will that you should pay Inheritance Tax
  • the deceased’s estate can’t pay it

There are certain reliefs from IHT. These include estates that include certain business assets or agricultural property.

 

It is also possible to reduce any IHT due on death by reorganising your estate while you are alive. This can be done with the use of trusts or by gifting assets. As you can imagine there are complicated rules that set out how these strategies can be used. Additionally, any assets left to your spouse or civil partner (providing they are UK domiciled) are exempt from IHT.

A new look to benefits in kind regime?

Tuesday, July 15th, 2014

HMRC are currently consulting with interested parties (the accounting profession and associated professional organisations) to re-vamp the UK’s system for taxing employee benefit in kind and expenses. Changes are planned to simplify this process in accordance with recommendations made by the Office of Tax Simplification.

Consultations commenced 18 June 2014 and due to be completed 9 September 2014.

The four areas of consultation are:

  • The abolition of the £8,500 threshold. The government believes that this threshold adds unnecessary complexity to the tax system and is consulting on who would be affected and how to mitigate the effects of abolition on vulnerable groups of employees.
  • Introducing a statutory exemption for trivial benefits in kind. The government believes that a clear and simple statutory exemption will make administering such benefits substantially easier for employers. The government will therefore consult on the design of such an exemption.
  • Replacing the current system of dispensations for reporting non-taxable expenses with an exemption for expenses paid or reimbursed by employers. The government believes that an exemption would be simpler, more transparent, consistent and easier to use for employers than the current system. This consultation will cover the design features of such an exemption and its administration.
  • Introducing a system of voluntary payrolling for benefits in kind. The government believes that payrolling benefits in kind instead of submitting forms P11D can offer substantial administrative savings for some employers and wishes to create a system that will enable employers to do so if they wish. The government will consult on the design and scope of a payrolling model and is also interested to hear from employers who are already payrolling benefits on an informal basis.

Exchequer Secretary to the Treasury, David Gauke, said:

“Following the valuable work the Office of Tax Simplification has carried out in reviewing employee benefits and expenses, the government is now consulting on changes that will deliver real improvements for businesses and individual and their experience of the tax system.

“We want to make sure we get the structure and detail absolutely right and each consultation will allow us to engage with and learn from those who will be directly affected.”

Is my State Pension taxable or not?

Friday, July 4th, 2014

The State Pension is part of a pensioner’s taxable income. The problem is, it is paid gross, without deduction of tax.

If your sole source of income is the State Pension then this should cause no problem as the State Pension is usually below the annual tax-free personal allowance. What can, and does, cause a problem is if you have other sources of income that combined with your State Pension exceed your personal tax-free allowance.

The assumption most pensioners make is that they can spend their State Pension. Unfortunately, this can lead to cash flow problems if a tax bill drops through your door. This should only happen if you have other income sources and any tax stopped on those additional income streams is insufficient to cover your total tax liabilities: based on all your income including State Pension receipts.

If you have additional income and receive a State Pension, it is necessary to crunch the numbers and see if you should be saving to meet a future tax bill. Readers concerned about their position should talk to the tax office or their professional tax advisor.

Reduce your company tax liability

Thursday, July 3rd, 2014

Don’t let tax be a problem this year. Stay ahead of developments and make sure you take advantage of ways to legitimately reduce your company’s liability to tax. Here are some of the allowances and planning tips directors and company owners should know about this year.

Research and development

The research and development (R&D) rules offer tax opportunities for SMEs. R&D expenditure carries a substantial 225% deduction against profits for SMEs. The rate of relief is 130% for large companies.

An additional tax credit system allows non-profit making companies to relieve the R&D expenditure or the trading loss – whichever is the lower – in exchange for a cash sum. There is a great deal of flexibility regarding what can be claimed for. Ask for our advice if you are incurring R&D costs.

Pension contributions

Pension contributions offer tax savings, including reducing national insurance contributions (NICs) for both the employee and the employer. Some employees and employers agree to a ‘salary sacrifice’, whereby a portion of salary is exchanged for a pension contribution by the employer. However, where the employer and employee’s annual contributions exceed £40,000, the employee may be subject to an annual allowance tax charge. An individual may carry forward any of the annual allowance that they have not used in the previous 3 years.

Entrepreneurs’ relief

Entrepreneurs’ relief can result in only a 10% tax rate on the first £10 million of qualifying business asset disposals, giving rise to a maximum reduction of £1,800,000. This is a lifetime allowance that reduces the gain for owners of limited companies on the disposal of shares and securities in a trading company. Conditions apply so please ask for further advice.

Cars

The tax treatment of cars in a company is complex due to recent changes that have affected both the capital allowances that the company can claim on the purchase of a car and the benefit in kind that employees will pay tax on (and the company will pay NICS on). The changes were designed in part to encourage both companies and employees to choose more fuel-efficient vehicles, by linking both taxes to the official emissions rating of the car. Choosing a fuel-efficient car can benefit both the employee and the business, with the lowest emission cars attracting 100% tax relief on purchase and carrying a benefit in kind as low as 0%.

‘Green’ capital allowances

It’s not only some cars that are eligible for 100% first year capital allowances. Any investment in approved environmentally friendly or energy saving equipment also qualifies.

Capital allowances

Getting the maximum in capital allowances for your business is an important part of minimising the net cost of the entrepreneur’s investment. The Annual Investment Allowance is 100% for the first £500,000 of expenditure on most types of plant and machinery from 1 April 2014 to 31 December 2015 – up from £250,000 between 1 January 2013 and 31 March 2014. The writing down allowance on unrelieved expenditure brought forward or in excess of this limit is 18%. A rate of only 8% is available for expenditure on ‘integral features’.

Extracting profit: dividend or salary?

Consider how much you might save if, as an owner-director, you wanted to extract the £10,000 profit your company makes in 2014/15 by way of a dividend rather than a bonus. We assume that you are paying higher rate tax at 40%, so your earnings exceed the so called ‘upper limit’ for NICs. There are many matters to be considered when deciding whether directors should be paid by dividend or salary and bonus.

Bonus or Dividend?    
  Bonus £ Dividend £
Profit to extract 10,000 10,000
Employers’ NIC -1,213 0
Gross bonus 8,787 0
Corporation tax @ 20%   2,000
Dividend   8,000
Employee’s NIC -176 0
Income tax @ 40% -3,515 0
Additional tax 0 -2,000
Net amount extracted £5,096 £6,000

 

In this case declaring a dividend increases the net by £904, or by more than 15%. For a 45% tax payer the saving is marginally lower at approximately £900.

In practice, a combination of each is usually appropriate. Remember that dividends are usually payable to all shareholders. If you have outside shareholders who are not involved in the day to day running of the company, you will need to consider your dividend strategy carefully. Although it is possible for shareholders to waive their entitlement to dividends, this can result in tax complications.

A better option may be to have different classes of shares, on which different rates of dividend can be paid. However, if this technique is used as part of a scheme to avoid tax or NICs for employees, it may not be effective and could even result in a higher tax liability. Finally, you may need to consider the effect that regular payment of dividends will have on the valuation of shares in your company.

As you can see in the case study, the net amount withdrawn is increased by more than 15% by opting to declare a dividend. But be sure to discuss this with us before you act as this is a very complex area of tax law.

We can help you:

  • Manage debt and cash flow
  • Plan to take account of future changes in the rate of corporation tax
  • Plan your business start-up
  • Find finance options
  • Comply with government regulations and avoid fines, surcharges, penalties and interest
  • Time capital and revenue expenditure to maximise the tax advantage
  • Improve your invoicing and debt recovery systems
  • Involve family members in the business
  • Develop a plan for tax-efficient profit extraction
  • Improve profitability
  • Sell your business or prepare your business for sale
  • Value your business
  • Minimise employer and employee NIC costs
  • Minimise tax costs, enabling you to keep more of the profit you earn
  • Identify and value unpaid bills and unbilled work at the year-end
  • Prepare yourself and your business for your exit, succession or retirement.

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