Archive for May, 2014

Tax free gains

Thursday, May 29th, 2014

 There are a number of assets that you can sell at a profit without paying capital gains tax (CGT) on the sale. They include:

  • Any car that is owned personally, and not by a business.

  • Personal possessions worth up to £6,000 each. For example jewellery, paintings or antiques.

  • Stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs.

  • UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury.

  • Betting, lottery or pools winnings.

  • Personal injury compensation, and

  • Foreign currency you bought for your own or your family's personal use outside the UK.

 

Of course, if you make a loss selling any of the above, the losses would not be available to set off against other gains for CGT purposes.

There are also certain reliefs that you can claim to mitigate or defer CGT. These include:

  • Business Asset Roll-Over Relief – This applies when you dispose of some types of business asset, which you intend to replace. You may be able to 'roll-over' or postpone the payment of any CGT that would normally be due.

  • Incorporation Relief – If you incorporate your business, that is, you transfer your business to a company CGT may not be due at that time.

  • Gifts Hold-Over Relief – You may be able to get this relief if you give away a business asset. You can postpone all or part of your gain until the asset is sold or disposed of by the person you gave it to.

  • Disincorporation Relief – When a business is transferred from a limited company to the shareholders, it is known as disincorporation. The shareholders continue the business in an unincorporated form – as a partnership or sole trader.

If you are thinking of selling assets that you are concerned may result in a tax charge please contact us for an opinion. Often there are planning opportunities that can be legitimately employed. The key is to plan the transaction carefully to maximise use of reliefs available.

Jason Holmes to compete in The Outlaw Triathlon in aid of Northern Ireland Cancer Fund for Children

Wednesday, May 28th, 2014

Many of you will be aware that we have partnered with Lumen Financial Planning to offer regulated financial advice, what you may not be aware of is, that Jason Holmes, the owner manager, has recently become a fitness fanatic!

Maybe it’s a mid-life crisis, maybe just a determination to show he’s not past it (yet!) but he has entered an Ironman Distance Triathlon on 27th July.

For those of you who aren’t aware of the Ironman Triathlon it consists of a:

2.4 mile open water swim

112 road cycle, and

26.2 mile run to finish

Yes, that’s a marathon at the end, and he has 17 hours to complete the whole event!

More details of the actual event (The Outlaw in Nottingham) can be found here

 

He is aiming to raise money for Northern Ireland Cancer Fund for Children. This is a local charity which supports families whose children have cancer, and also supports children if one of their family members has cancer.  Every week 3 children in Northern Ireland are diagnosed with cancer.  A YouTube video explaining NICFC’s brilliant work is here

Jason has set himself a target of raising £30,000 to cover the cost of building a play area at Daisy Lodge and we at McCleary & Company are delighted to support him. We’d encourage as many of our friends and colleagues to support him too, you can give via his Just Giving page.

Please make Jason’s efforts worthwhile by giving generously to this worthwhile cause.

 

 

7 Questions to ask when choosing your accountant

Wednesday, May 28th, 2014

Are you a member of any professional body?

Unlike other professions, anyone can open an office and call themselves an accountant, no training or qualifications are required!  There are many unqualifieds out there, I suspect that many of their clients don’t realise they are unqualified!  You wouldn’t go to an unqualified doctor, so why take a risk with your financial health?  If your accountant is qualified, he will normally append the qualification to the firm name, for example, McCleary & Company, Chartered Accountants & Registered Auditors. The main professional bodies for accountants in practice are; Chartered Accountants and Association of Chartered Certified Accountants.  Beware of firms who call themselves simply ‘Accountants and Auditors’, they may not have any formally qualified staff!

As members of ‘Chartered Accountants Ireland’, we are subject to regulation and regular independent third party review.  This gives assurance that our standards will be maintained.  Accountants who are not members of professional bodies do not have this level of assurance, so their quality may suffer.

 

Who regulates you for Money Laundering purposes?

Accountants are a regulated profession under the Money Laundering Regulations, generally the professional bodies regulate their own members, however, ‘accountants’ who are not members of a professional body are supposed to be registered with HMRC for money laundering purposes.  If they are not registered, they are breaking the law.

 

How do you keep up to date with changes in legislation?

Rules and regulations, especially tax, are constantly changing.  Members of professional bodies have a CPD (Continuing Professional Development) requirement to do a minimum number of hours study per year.  Any professional who does not do at least this amount of study, cannot possibly hope to keep up to date.  An out of date accountant can prove to be very expensive, even if his fee is small!

 

Who pays your fees in the event of a tax investigation?

Anyone can have a tax investigation, while generally targeted, the HMRC computer selects some on a completely random basis.  Investigations are worrying and time consuming, often the professional fee will far outweigh any additional tax that might be due.  For this reason we include our Tax Investigation Service in our annual fee.  Our firm pays an insurance premium, which means that the insurance company, not the client, will pay our fees in the event of a Tax Enquiry.  Some other firms also offer this service, so it’s worth checking if it can be included.

 

How many times will we meet a year?

Some clients only want a set of accounts and a tax return and are happy to only meet once a year to finalise them, however, if you want to minimise your tax bill, it is better to meet before your year end, when it is still possible to plan, once the year end passes, your planning options are limited.  I believe that you should meet your accountant at least twice a year.  A pre-year end tax planning meeting a couple of months before the year end, will enable you to discuss advancing expenditure and various other options to legally minimise your tax bill.

 

What happens if you are unexpectedly absent from the business?

A one man band accountant, working from home, will often be a cheaper option than a slightly larger firm but this option does come with some risks.  What happens if your accountant becomes ill just before a deadline?  Will your work get done and who will pay any fines or penalties?  Members of professional bodies, who are sole traders, are required to have alternates that will stand in for them, although they are often busy dealing with their own clients, so your job may not be their first priority.

Do you have any Professional Indemnity Insurance?

Even in the best firms things can go wrong, firms who are regulated by the main professional bodies are required to have Professional Indemnity Insurance, so that if a client suffers a loss due to the firm’s negligence, they have some redress.  Some unqualified accountants also have insurance but not all of them, so it is worth asking the question.

 

 

Conclusion

Some business people choose their accountant based purely on price, but all accountants are not the same, you could be comparing apples with oranges!  This list is not exhaustive but I’d suggest that satisfactory answers to these seven questions should be a pre-qualifier for developing your shortlist.  Price is obviously a consideration but it should not be the only one, in the words of Warren Buffet ‘Price is what you pay, Value is what you get.’

Tax anomalies

Thursday, May 22nd, 2014

Institute for Fiscal Studies director, Paul Johnson, recently spoke at the annual Chartered Tax Advisor Address. He pointed out a number of the unnecessary complications and policies that have left the UK tax system more complex and less efficient.

“For example:

  • There is a basic rate of income tax of 20%, a higher rate of 40% and a top rate now of 45%. What is less well known is that the last government introduced a rate of 60% on a band of income starting at £100,000. This government has maintained it and effectively increased its range considerably. There is now a 60% rate of income tax on income between £100,000 and £121,000 (where it drops back to 40%). It’s hard to make much sense of that.
  • Several elements of the income tax system no longer adjust with inflation. The point at which the 45p rate becomes payable, and indeed the point at which the 60p rate becomes payable, is fixed in cash terms and has already fallen by more than 12% relative to the Consumer Prices Index since its introduction. More people will gradually be pulled into these higher rates. There is apparently no plan to stop this.
  • This government has accelerated a trend overseen by recent governments which has fundamentally altered the nature of our system of income tax, namely a continued increase in the number of higher rate taxpayers. Numbers have risen from less than 2 million in 1990 to nearly 4 million in 2007 and well over 5 million by 2015. The problem is not necessarily so much the fact of the change – there is a case for, and a case against, such a system – but the fact that this fundamental change to our tax system, which appears to have the support of the three main political parties, has never been announced or properly debated.
  • Governments of all stripes have continually cut income tax whilst increasing National Insurance Contributions (NICs) – a tax on earned income. The only reason for this is that income tax seems to be more salient and therefore increases to NIC rates are politically easier.
  • The last government and this one raised rates of Stamp Duty Land Tax time and time again. This is one of the worst designed and most damaging of all taxes, yet revenues from it are due to hit £15 billion within just a few years. At the extreme a £1 increase in sale price can now trigger an additional £40,000 tax bill. The tax helps to gum up the entire property market.”

Will any of these comments affect future tax policy? We shall have to wait and see.

Why it\’s important to plan

Tuesday, May 20th, 2014

Consider this case study:

Bill Smith, a self-employed electrician, purchased a brand new van 15 March 2014 for £18,000. Due to a downturn in the local economy his trading profits for the year to 31 March 2014 were just £9,400. Fortunately, he had secured a number of regular contracts for the following year that should net at least £30,000 in the trading year to 31 March 2015, however, he would be required to travel and hence the purchase of the new van.

Towards the end of June 2014 Bill took his books to his accountant to work out his tax position for 2013-14. In July 2014 Bill was called in for a meeting.

His accountant informed him that his adjusted taxable profits for 2013-14 were £10,400. His accountant also informed him that he could claim a reduced Annual Investment Allowance for the purchase of the van of £1,000 that would clear any tax liability for the year.

Bill was feeling good, no tax to pay. Then, the bad news…

As the initial claim for the van had been made in 2013-14 (due to purchase during March 2014) the balance not written off for tax purposes (£18,000 – £1,000) £17,000 would only be available in later tax years for an 18% writing down allowance. So for the tax year 2014-15 Bill could claim (£17,000 x 18%) £3,060 as a reduction of his profits for that year. Based on estimated profits of £30,000 this would produce a tax bill of approximately £3,400.

Then more bad news, Bill was advised that if he’d delayed the purchase of the van for three weeks, until after 5 April 2014, he could have written off the entire purchase price of the new van against his profits for 2014-15 and reduced his tax bill for that year to £400 instead of £3,400. With no claim for the van in the earlier tax year, his tax bill for 2013-14 would have been £200 and £400 for 2014-15. In total a cash flow saving of £2,800 (£3,400-£200-£400).

The moral of the story is – planning is important.

If you are considering any significant change in your business activities talk it over with us BEFORE you under take the change. The old cliché is supremely relevant: there really is no point in closing the stable door after the horse has bolted.

Why it’s important to plan

Tuesday, May 20th, 2014

Consider this case study:

Bill Smith, a self-employed electrician, purchased a brand new van 15 March 2014 for £18,000. Due to a downturn in the local economy his trading profits for the year to 31 March 2014 were just £9,400. Fortunately, he had secured a number of regular contracts for the following year that should net at least £30,000 in the trading year to 31 March 2015, however, he would be required to travel and hence the purchase of the new van.

Towards the end of June 2014 Bill took his books to his accountant to work out his tax position for 2013-14. In July 2014 Bill was called in for a meeting.

His accountant informed him that his adjusted taxable profits for 2013-14 were £10,400. His accountant also informed him that he could claim a reduced Annual Investment Allowance for the purchase of the van of £1,000 that would clear any tax liability for the year.

Bill was feeling good, no tax to pay. Then, the bad news…

As the initial claim for the van had been made in 2013-14 (due to purchase during March 2014) the balance not written off for tax purposes (£18,000 – £1,000) £17,000 would only be available in later tax years for an 18% writing down allowance. So for the tax year 2014-15 Bill could claim (£17,000 x 18%) £3,060 as a reduction of his profits for that year. Based on estimated profits of £30,000 this would produce a tax bill of approximately £3,400.

Then more bad news, Bill was advised that if he’d delayed the purchase of the van for three weeks, until after 5 April 2014, he could have written off the entire purchase price of the new van against his profits for 2014-15 and reduced his tax bill for that year to £400 instead of £3,400. With no claim for the van in the earlier tax year, his tax bill for 2013-14 would have been £200 and £400 for 2014-15. In total a cash flow saving of £2,800 (£3,400-£200-£400).

The moral of the story is – planning is important.

If you are considering any significant change in your business activities talk it over with us BEFORE you under take the change. The old cliché is supremely relevant: there really is no point in closing the stable door after the horse has bolted.

NIC employment allowance

Thursday, May 15th, 2014

HMRC have published further clarification regarding who can, or cannot, claim the new £2,000 a year NIC Employment Allowance. Extracts from the update are set out below:

Public authorities

Public authorities (such as local authorities, town councils and parish councils) are not eligible for the Employment Allowance unless they have charitable status.

Pharmacies

Independent pharmacies conducting a business, including over the counter sales as well as dispensing NHS prescriptions, are entitled to claim the Employment Allowance.

Educational Institutions

Schools, academies, further education colleges and universities are entitled to claim the Employment Allowance if they are private businesses or charities. This includes local authority or central government funded institutions provided they have charitable status.

If your charity is connected to another charity, then there will be entitlement to just one allowance for all of the connected charities. So, an education trust which controls several academies with charitable status will be entitled to just one allowance and it will be up to them to decide which academy makes the claim.

Domestic staff

Employers of domestic staff will be unable to claim the Employment Allowance as the employees are all being employed in a personal capacity to support the running of a household.

Franchises

Where a person operates a franchise, the employer (franchise holder) will be entitled to the Employment Allowance. However, if the franchise holder controls more than one franchise of a business, there will only be entitlement to one Employment Allowance for all of the franchises of the business controlled by that franchise holder.

Self employed

Can the self-employed claim the Employment Allowance? Yes, but only if you have employees and your business pays employer Class 1 NICs on your employees’ earnings.

Small business VAT scheme

Tuesday, May 13th, 2014

If you are a registered VAT trader and your present turnover is below £150,000 you may be advised to take a look at the VAT Flat Rate Scheme (FRS).

FRS users pay VAT as a fixed percentage of their total sales including VAT. You still add 20% VAT to your invoices but you cannot reclaim VAT on purchases or expenses paid.

The flat rate that you apply depends on the business sector in which you trade. Rates vary from 5% to 14.5%.

Benefits of using the Flat Rate Scheme

Using the Flat Rate Scheme can save you time and smooth your cash flow. It offers these benefits:

  • You don't have to record the VAT that you charge on every sale and purchase, as you do with standard VAT accounting. This can mean you spending less time on the books, and more time on your business. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting
  • If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered
  • You no longer have to work out what VAT on purchases you can and can't reclaim
  • With less chance of mistakes, you have fewer worries about getting your VAT right
  • You always know what percentage of your takings you will have to pay to HMRC

Potential disadvantages of using the Flat Rate Scheme

The flat rate percentages are calculated in a way that takes into account zero-rated and exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the VAT Flat Rate Scheme might not be right for your business if:

  • You buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases
  • You regularly receive a VAT repayment under standard VAT accounting
  • You make a lot of zero-rated or exempt sales

It is well worth crunching the numbers to see if a switch to FRS would be advantageous. It is possible that using the FRS would save you money as well as time.

International tax competitiveness

Friday, May 9th, 2014

David Gauke, the Exchequer Secretary to the Treasury, recently gave a speech to the Lord Mayor’s Taxation Forum. His presentation focussed on international tax competitiveness, and how the UK’s system fares compared to our overseas competitors.

Here’s an extract of his comments:

Competitiveness

“Since 2010 we’ve cut corporation tax from 28% to 21%. And this time next year it will fall again, to just 20%. To spur innovation, we’ve introduced the Patent Box and the ‘above the line’ tax credit for Research and Development.

  • we’ve modernised our Controlled Foreign Company (CFC) regime
  • we’ve cultivated a generous environment for oil and gas exploration
  • we’re supporting the creative sector through a number of targeted tax reliefs

And at the Budget last month, we announced further tax incentives to support business, by:

  • doubling the Annual Investment Allowance
  • increasing the R&D credit for innovative companies
  • overhauling the UK Export Finance direct lending programme

It is not just about the competitive tax rates, reliefs and allowances. How we make tax law is important. In 2010, we published a Corporate Tax Roadmap, setting out what we were going to do and also, perhaps more importantly, explaining what we were not going to do.

We have also established a new tax policy-making process, ensuring proper consultation and the early publication of draft legislation – enabling us to refine and improve our legislation. And the importance of tax administration can be under-estimated. We recognise that our tax administrators need to understand major taxpayers. We’ve made sure that the largest two thousand corporations in the UK have their own dedicated relationship managers at Her Majesty’s Revenue and Customs, who can support those organisations and help to ensure that they are paying the correct amount of tax.

And that system exists, because it’s in everyone’s interests to have a strong working relationship that will ensure revenues are paid fully, and that any disputes or queries can be played out quickly without expensive litigation.

This is not about being a soft touch. Tough action is taken wherever necessary. But a constructive relationship built on trust between the taxpayer and the tax collector continues to bring in the revenue for the UK exchequer and add to the attractiveness of the UK system.”

Be interesting to see how this “carrot and stick” approach works in the real world as the UK promotes itself as a low-tax jurisdiction, but beware if you don’t pay your dues…

International tax competitiveness or political spin

Friday, May 9th, 2014

David Gauke, the Exchequer Secretary to the Treasury, recently gave a speech to the Lord Mayor’s Taxation Forum. His presentation focussed on international tax competitiveness, and how the UK’s system fares compared to our overseas competitors.

Here’s an extract of his comments:

Competitiveness

“Since 2010 we’ve cut corporation tax from 28% to 21%. And this time next year it will fall again, to just 20%. To spur innovation, we’ve introduced the Patent Box and the ‘above the line’ tax credit for Research and Development.

  • we’ve modernised our Controlled Foreign Company (CFC) regime
  • we’ve cultivated a generous environment for oil and gas exploration
  • we’re supporting the creative sector through a number of targeted tax reliefs

And at the Budget last month, we announced further tax incentives to support business, by:

  • doubling the Annual Investment Allowance
  • increasing the R&D credit for innovative companies
  • overhauling the UK Export Finance direct lending programme

It is not just about the competitive tax rates, reliefs and allowances. How we make tax law is important. In 2010, we published a Corporate Tax Roadmap, setting out what we were going to do and also, perhaps more importantly, explaining what we were not going to do.

We have also established a new tax policy-making process, ensuring proper consultation and the early publication of draft legislation – enabling us to refine and improve our legislation. And the importance of tax administration can be under-estimated. We recognise that our tax administrators need to understand major taxpayers. We’ve made sure that the largest two thousand corporations in the UK have their own dedicated relationship managers at Her Majesty’s Revenue and Customs, who can support those organisations and help to ensure that they are paying the correct amount of tax.

And that system exists, because it’s in everyone’s interests to have a strong working relationship that will ensure revenues are paid fully, and that any disputes or queries can be played out quickly without expensive litigation.

This is not about being a soft touch. Tough action is taken wherever necessary. But a constructive relationship built on trust between the taxpayer and the tax collector continues to bring in the revenue for the UK exchequer and add to the attractiveness of the UK system.”

 

Political Spin

Be interesting to know what Amazon, Starbucks and Google think, as the UK promotes itself as a low-tax jurisdiction, while they are attacked by our media and politicians for using the existing law.

The 2014 Finance Bill proposes to introduce Retrospective Legislation, while also removing the right to independent appeal against HMRC decisions.  Hardly the actions of a pro business government!

 

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