Automatic Protection Ltd in Biggar have been a client of ours since 2013. They were established in January 2001 by Father and Son team Neil and Stuart Harrison. Based in the border town of Biggar, South Lanarkshire, APL has over 45 years of experience in the fire and security industry with unparalleled expertise in Automatic Fire Extinguishing & Fire Suppression systems. See more details at: https://www.autoproltd.co.uk
Making Tax Digital – The Short Version
Making Tax Digital sounds complex but in the first phase all that it means is that all VAT registered businesses must be submitting VAT returns straight from Software starting in April next year.
Making Tax Digital – The Slightly Longer Version
HMRC’s Making Tax Digital initiative is edging ever closer. So with just six months to go until it comes in here is a review of where we are.
Here is HMRC’s take on it https://www.gov.uk/government/publications/making-tax-digital-how-vat-businesses-and-other-vat-entities-can-get-ready/making-tax-digital-how-vat-businesses-and-other-vat-entities-can-get-ready
Whilst the later phases are still clouded in confusion, the initial phase which covers VAT is now coming and clients will need to submit their VAT returns straight from software. No more totting up invoices on a calculator and then typing the VAT return numbers in to the HMRC VAT portal. It isn’t even clear if a spreadsheet will suffice.
So the bottom line is that in practice all VAT registered businesses should be converting to electronic book keeping by the end of 2018 to be ready for the change. Clients using old unsupported versions of Sage will either have to upgrade to the latest version or even better convert to a cloud accounting package.
Many of our clients wont notice the difference as the are already on Xero, Freeagent or Kashflow either supported by us or with us doing their book keeping. However the few that are still calculating VAT returns manually and then giving us a shoe box at the end of the year will need to convert as soon as possible.
If you are unsure about what you need to do give us a call and we will point you in the right direction.
There is more detail on Making Tax Digital here from the Tax Institute. https://www.tax.org.uk/policy-technical/technical-news/making-tax-digital-vat-main-issues-consideration
First introduced in 2000 the IR35 rules (more correctly known as the intermediaries legislation for income tax) have forever since been a source of stress and worry for contractors. Someone who works in a “Personal Service Company” is supposed to do a self assessment as to whether they are caught by the legislation that in effect says that they are a disguised employee. If so they then have to pay a deemed payment to themselves through PAYE as described here: https://www.gov.uk/guidance/how-to-calculate-the-deemed-employment-payment
The practical upshot is that if the deemed payment is applied then the contractor ends up paying the Employer’s and Employee’s National Insurance. Not a scenario most would want. So many contractors assume they are outside IR35 and proceed as such.
Contractors can use HMRC’s CEST tool to try and determine their status. But this tool is potentially not always accurate. HMRC lost yet another tribunal recently https://www.ipse.co.uk/our/news-listing/defeat-puts-to-pasture-hmrc-s-argument-about-moo.html where CEST may well have not reported the answer that the judge found.
Another change came in April 2017 when the Government brought in rules to tighten up the use of contractors in the public sector. The IR35 status decision in Public Sector contracts is now made by the client, not the contractor. The risk of getting the status wrong now resides with the client. This might seem good for the Contractor but in practice has led to the reduction of Public Sector contracts that are available.
If this all seems opaque then there is possibly more to come. The Autumn budget 2017 contained the information that the Government would be consulting about extending the new Public Sector IR35 rules to the private sector. So watch this space!
If you would like common sense advice on a potential or existing contract that you have please give us a call or fill in the contact form below.
The government announced the abolition of Class 2 NI last year.
However as is so often the case the law of unintended consequences kicked in and this week the government announced that Class 2 would not be abolished after all.
One of the consequences of this change was that people with self employed profits below £5965 (18-19 rate) would not receive a credit for that year towards their state pension. Currently a person needs 35 years of National Insurance credit to get the new flat rate state pension. https://www.gov.uk/new-state-pension/how-its-calculated
In this case a person would have to pay Class 3 National Insurance at a rate nearly 5 times the rate of Class 2! So for example if a person was starting a business and made losses in the first year they would either not get a credit towards their state pension or have to pay £761.80 (18-19 rate) in Class 3 contributions.
The U Turn has widely been reported as the reversal of a tax cut for the self employed https://www.independent.co.uk/news/uk/politics/philip-hammond-tax-cut-self-employed-scrap-conservatives-national-insurance-contributions-nic-class-a8526236.html
However for low paid Self Employed workers paying Class 2 NICs is an essential method of ensuring they get the full state pension.
When we take on a new client who is setting up a business there is often a frustrating delay while they have to go to a traditional bank to set up a bank account. This process can take weeks.
Sutherland Black are pleased to announce a new partnership with Tide, one of a new breed of online banks, who can set up a Business Account in hours rather than weeks.
We have our own dedicated page for account setups where clients will get a discount off the already low charges.
Click here to go to our dedicated partner account setup page.
If you want to read more about how Tide can help your business have a look at their website here: www.tide.co
The Autumn Budget of 2017 announced that there would be a change to the VAT regime for Contractor Labour starting in October 2019. Similar to the existing CIS scheme this will mean that VAT charged on labour will be paid over by the recipient of the labour service rather than the supplier.
This means yet another scheme for contractors to run alongside CIS when using subcontractors.
The government published a response to their consultation on the 1st of December 2017. In it they confirmed that:
- The scope of the reverse charge will follow the Construction Industry Scheme definition of construction services.
- There will be no threshold applicable to the measure and no exemption for Flat Rate Scheme users (even though they will effectively have to leave the scheme to be able to recover VAT on the costs).
- Sales to the final customer in the chain will not be covered by the reverse charge. Respondents to the initial consultation warned that there may be particular definition issues for joint ventures and special purpose vehicles in the voluntary and public sectors so the definition of ‘the final customer’ will be subject to further consultation in Spring 2018.
If you would like any advice on how this will affect your Contracting business please get in touch!
A change in coming in April 2020 that will affect landlords and second home owners when they come to sell up.
In the past a Capital Gain on the sale of a second property could be reported in a self assessment return. This meant that if a gain was made on the 6th of April that the tax would not be due for nearly 22 months! The gain would be reported at the end of the tax year and the tax wouldn’t be due until January 31st of the following year.
Full details here.
Consultation has just finished on a change that will mean that payment will be due withing 30 days of the disposal. The seller will have to submit a “payment on account” return at the same time.
Obviously this wont affect people selling their main residence as Principle Primary Residence Relief normally applies.
Get in touch if you are thinking of selling a rental or holiday home.
Click here to go to our homepage and fill in the contact form and we will get back to you.
Sutherland Black have just become a Xero Silver Partner! This recognises our rapid growth in bringing Xero to our clients. Our listing on the Xero website has been updated with our new status: https://www.xero.com/uk/advisors/accountant/2012/sutherland-black-chartered-accountants/
The advantages of Cloud Book Keeping software are clear to see for our clients. Automatic bank feeds reduce errors and thanks to open banking direct bank feeds are now available for all the major banks.
Making Tax Digital (MTD) for VAT is starting from April 2019. Xero will be MTD compliant meaning that clients who already use Xero will not see any impact to their processes. Clients who use spreadsheets and then enter their VAT returns on the HMRC portal will not be able to do this any more. Converting to Xero is an easy way to be MTD ready.
We have helped many of our clients convert to Xero. With MTD looming the pace of conversion will only increase. Give us a call if you would like us to show you how easy it is.
For more information have a look at www.xero.com
An Accounting Revolution
While everyone was celebrating the New Year in January a new piece of seemingly obscure banking legislation came into place in the UK which has the power to revolutionise the way that small businesses integrate technology with their banks.
Previously if a third party application like a piece of book keeping software wanted to import bank transactions instead of manually entering them there were a few alternatives. Most banks will let you download a csv file of transactions and then you could import that. Some banks had individual arrangements with software providers to allow direct access but each agreement had to be individually negotiated so many combinations of software and banks weren’t available. Lastly businesses could use a third party such as Yodlee to sit between the two however this meant providing bank logins to third parties which potentially was against the terms and conditions of the bank.
The new legislation however seeks to sweep away these restrictions. The 9 biggest banks must now give access to authorised third parties through an “API”. This means transactions can be read (and potentially updated) by third party applications. This isn’t just book keeping software. This is going to mean an explosion in “Fintech” products that access bank accounts directly. Yolt is an early example of this in the consumer area.
What Does This All Mean in Practice?
What does this mean in practice for small business and accountants. Well in short it means that live bank feeds are now not really optional! Every small business should be using live bank feeds in their book keeping software. This not only speeds things up but reduces errors as well.
In the future apps will be able to not just read transactions but make payments as well. So there will be a time soon where software rules will be able to set. An example might be: “If the bank balance is above £5,000 pay outstanding supplier invoices in date order”. Automation is coming whether we like it or not!
PS. The banks that are legislated to do this are: Barclays plc, Lloyds Banking Group plc, Santander, Danske, HSBC, RBS, Bank of Ireland, Nationwide, AIBG. Interestingly Clydesdale is not on this list who we have a number of clients with!
Its nearing the end of the Tax Year! Here are our top tips on year end planning and how to Save Tax.
Director’s salary levels:
Many small business owners pay themselves a small salary and take the rest of their income in dividends in order to be tax efficient. These salary levels should be reviewed every year. There are two critical thresholds that need to be noted for the 18/19 tax year:
- In order to receive a credit for the year towards the State Pension the salary should be above the “Lower Earnings Limit”. This will now be £503 a month. This has the happy outcome of getting a year credit for the state pension without paying any National Insurance.
- In order to be the most tax efficient and avoid paying any National Insurance for the Director the optimum salary is £702 a month. This level can be affected if the Director has Benefits in Kind and depending on how many employees the Company has. If you want personalised advice please get in touch.
Workplace pension minimum contribution up to 5%
For those already running a workplace pension the minimum contributions are set to rise to:
- Employer Contribution 2%
- Staff Contribution 3%
Full details here: https://www.thepensionsregulator.gov.uk/employers/contributions-funding-tax.aspx
Remember for those clients who use us for their payroll we can offer a very cost effective Workplace Pension admin service.
End of Year Tax Planning Items for Companies:
Remember that some Company actions impact Personal Tax. Here are our ideas of the main things you should be thinking about:
- If you are making Company Pension payments then consider making them before the end of the tax year to use the current year’s allowance. This stands at £40,000 a year currently.
- If you are going to declare dividends then consider which Personal Tax year you would like them to fall in to. If you would like them to be in the 17/18 tax year then they should be declared before the 5th of April. The 17/18 tax year is the last year of £5,000 of tax free dividends. The dividend tax allowance falls to £2,000 from April.
End of Year Tax Planning Items for Individuals:
Individuals should be planning for the end of the tax year too. Here are our top tips of what to be thinking about:
- ISA allowances: If you have spare cash the ISA allowances are extremely generous. The current year total is £20,000. Details are here: https://www.gov.uk/individual-savings-accounts
- Personal Pension Payments: Remember if you are making Personal Pension Payments that the level you can contribute is limited by the “Earnings” that you have received. Payments will need to be received by the 5th April to use this year’s allowance. Small business owners should nearly always be paying Pension Payments straight from the Company so this limit is removed.
Major Tax Changes for Next Year:
- New Scottish Tax rates
- Reduction of interest relief on Buy To Let Property
- Remember that the tapering down of higher rate interest relief on Buy To Let Property is continuing. 2018/19 will see it go from 25% to 50%.
Get in Touch:
If you would like any more specific advice on anything in this newsletter please don’t hesitate to get in contact. Keep an eye on our website for news and stories relevant to small business owners. Wishing all our clients a Happy New Tax Year in advance!