HMRC is trying to lay down the law by publishing a risk based scoring system to decide whether a company is at a low, medium or high risk of being assessed for IR35.  While the principles have been in place for several years and there are many case law decisions it is a radical step to rationalise these.  The risk levels are as follows:

The tests are as follows:

This is a pretty blunt tool, in reality it needs  some of the big number tests to be answered yes in order for there to be any chance of keeping in the low risk band.  It is clearly biased in favour of HMRC and no doubt there will be challenges from PCG and others in the future.  For the full text click on HMRC IR35 Guidance.

These facts are based on our understanding of the latest guidance.  For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

• Growth remains slow running at 0.8% for 2011 but future forecasted increases of around 2% are still expected
• Inflation is expected to fall for the remainder of 2012 and to be close to the Bank of England target of 2% by the beginning of 2013

The government continues its deficit reduction plan and plans no giveaways from the sale of the Post Office whose pension scheme is being taken over by the public sector.  The actual announcements:

Introduction

• There will be an automatic review of the state pension age to keep pace with longer life expectancy
• National Loan Guarantee scheme – to encourage bank lending, the banks reacted to this just before Budget day by offering preferential interest rates and Barclays are even offering a cashback
• Local news – there is a move to look further at airport capacity in the South East, it appears the pressure will be on for an Estuary airport
• New Enterprise zones being introduced in Scotland, Wales and Northern Ireland with opportunity for enhanced capital allowances
• Increased support for life science, aerospace, film and particularly the video game industry
• Olympic news – there will be extended Sunday opening hours for 8 weekends around the Olympics

Entrepreneurs and business

• Small companies corporation tax rate remains at 20%
• The expected “Main corporation tax rate” from 1 April 2012 has been cut by 1% to 24%, and will reduce in the next two years by 1% pa to 22% and will ultimately reduce to 20% – one of the lowest rates in the G20
• Small unincorporated businesses turning over less than £77k will be allowed to submit tax returns on a cash rather than accrual basis

Individuals and families

• The much leaked and politically motivated increase in the rate of personal allowance has taken one step closer to £10k, with an increase to £8105 for 2012/13 (already released) and £9205 for 2013/14
• The “granny tax” – age related allowances are going to be phased out as personal allowance levels approach £10k, any loss will be outweighed by increased state pensions
• 20k taxpayers will receive a Personal tax statement breaking down how much tax they have paid and what it has been used for – a little like the statement we already receive for council tax annually
• Rather than restricting child benefit for higher rate taxpayers, it will only be phased out for earners over £50k in the household, being lost totally by £60k income

High earners

• Stamp duty increase for residential properties over £2m will be 7% (15% where owned by corporate bodies and capital gains tax to be charged on these properties too)
• Top rate of tax to be reduced from 50% to 45% from April 2013, this caused massive distortions and only raised 1/3 of the expected revenues
• A limit on currently uncapped tax reliefs means that anyone claiming over £50k reliefs, a cap will be set at 25% of income – this will restrict the amount high earners can benefit from the reliefs available

Motorists, fuel and duties

• Motorists – vehicle excise duty will increase by inflation for cars but frozen for HGVs
• Fuel duty rises will go ahead but will not be more than inflation unless oil prices fall below £45 per barrel
• Smokers, drinkers and gamblers – Tobacco duties increased by 5% over inflation from 6pm on Budget day, 37p per pack.  No increases in alcohol duties, various measures being introduced to ensure overseas online gambling has no advantage over UK based establishments

More changes will be released over the next few days, but the summary above is based on our understanding of the Budget and you should seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

The decision to change the starting limits for both tax and NI is made every autumn to take place in the following tax year.  The rates are increased every year  partly to keep in step with inflation and partly for socio-political reasons.  Last year there were plans to consolidate tax and NI systems and the point at which tax and NI is charged “should” have been equalised, however this did not happen.  This year there are political pressures to increase the PAYE tax allowance towards £10k so the gap between starting point for NI and PAYE has grown once again.

Directors are in the position where they can decide at what level to pay themselves to draw tax free but still accrue state entitlements.  These changes are as follows for 2012/13:

Lower earnings limit:      £107pw / £464pm / £5,564pa

Primary Threshold:          £146pw / £633pm / £7,592pa

Secondary threshold:      £144pw / £624pm / £7,488pa

So if you are currently paying yourself £589pm, you should be paying under £624pm, I would suggest £620 from 6 April to avoid any possibility of incurring tax through roundings.  This is just below the secondary threshold (employers), providing nothing changes in the budget.

These facts are based on the current HMRC NI rates.  For specific advice relating to your circumstances seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

Profit and loss for the year (with previous year comparatives)

• Click on Reports, then Company and Financial, then Profit and Loss Previous year comparison
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

Balance sheet (with comparatives)

• Click on Reports, then Company and Financial, then UK Balance Sheet Previous year comparison
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

Trial balance

• Click on Reports, then Accountant and Taxes, then Trial Balance
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

Detailed nominal transaction list

• Click on Reports, then Accountant and Taxes, then Transaction detail by account
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

Summary aged debt

• Click on Reports, then Customers and receivables, then A/R Aging summary
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

Summary aged credit

• Click on Reports, then Suppliers and payables, then A/P Aging summary
• Amend the date in the in the Dates dropdown box to Last Financial Year
• Save report by clicking File, Save as pdf

This is based on a version of Quickbooks 2010 and there may be small differences to earlier versions.  This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

• Make sure all purchase and sales invoices are entered
• Update your bank reconciliation to the year end and make sure cash balances are correct
• Look at your debtors to see if there are any bad debts and write them off or inform your accountant
• If you have stock complete a stocktake
• This is not all inclusive and your accountant should be able to advise you of specific requirements

If you provide adequate details when entering data your accountant should only need the following information

• Profit and loss for the year (with previous year comparatives if possible)
• Balance sheet (with comparatives)
• Trial balance
• Detailed nominal transaction list
• Summary aged debt
• Summary aged credit

Details of how to save the reports are provided in separate blog posts for Quickbooks and Sage.

Other details you may need to provide

• Wages records
• Stock count
• VAT records

With these details it should be possible to efficiently complete your annual accounts.   This article is only for general information and there may be other factors which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

iQ driven to #autotweetup by Scott Brownlee

may be more appropriate, depending on the use it may be free or a low cost benefit.  However if you are looking for a regular family car the benefit is worked out based on list price and CO2 emissions:

• List price is the manufacturers list price and should include cost of any extras, not normally the price you pay for the vehicle
• CO2 emission figure is the number quoted on the registration document, beware of using calculators on price guide sites as these may not be correct (as in example below).  This is translated into a percentage (annually increasing by 1%) which is multiplied by the list price to work out the benefit charge
• Fuel benefit is charged at the same percentage rate on a fixed sum of £18.8k

So if you are looking for a regular sporty family car eg Aug 2010 Vauxhall Insignia CDTi Sri 130 the benefits are as calculated as follows:

• Car benefit – CO2 emissions of 154g/km translate into a 21% rate to which 3% is added for diesel cars.  Based on a list price of £23,395 the benefit is £5381
• Fuel benefit is £18,800 X 24%, £4512
• The cost to the employee as a basic and higher rate taxpayer is £1978 and £3957 respectively
• It is only worth taking private fuel if driving more than 12000/6000 miles pa as a 40%/20% taxpayer (based on £6/gallon and 40mpg)

LFA at 7 Hotel Diner #autotweetup

At the #Autotweetup at the 7 Hotel Diner there were cars from both ends of the spectrum, a Lexus LFA and Toyota iQ, and for comparison purposes the benefits on these would be:

Lexus, list price £330k, emissions 379g/km, so 35%:

• Car benefit – £115,000, fuel benefit £6,580
• Cost to employee as 40% taxpayer £48,632

Toyota iQ 1.3VVTi, list price £12,976, emissions 113 g/km, so 10%

• Car benefit – £1,298, fuel benefit £1,880
• Cost to employee as 20%/40% taxpayer £635/£1,271

There are many choices to be made and the most important issue to consider is what is the car needed for, opening up different opportunities.  This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

• A young couple recently set up a company and providing they can restrict their earnings to £30k pa between they will not have to make any student loan repayments.  They are no doubt hoping that the business will grow so that they will have to be avoiding higher thresholds in the future.
• A recently retired but still working sole trader may benefit from incorporating as by restricting  salary and dividends to £24k they may be able to retain the “age allowance” which could be lost by staying as a sole trader with profits over that amount
• A client wanting to take on a part time staff member for a few hours per week can ensure they qualify for basic state benefits by paying them more than £102pw (£5,304 pa) providing they work enough hours.

While always trying to save clients tax there is no tax free ticket, the old adage “if you earn it you need to pay it” always applies.  Some of the thresholds are shown below which demonstrate the range of income levels which need to be considered day by day:

£5,304                   Pay level at which NI contributions are recognised

£7,072                   Employers start paying NI

£7225                    Employees and self employed start paying NI

£7,475                   Personal tax allowance for individuals

£9,940                   Personal allowance for people aged 64-74

£10,600                Annual exempt amount for Capital Gains tax

£15,000                 Repayment of student loan begins

£24,000                Income limit for age related personal allowances

£35,000                Amount which can be earned paying basic rate tax

£42.5k                   Employees and self employed NI contribution rate reduced

£100,000              Personal allowance starts to get lost

£150,000              50% tax band applies

£325,000              Inheritance tax threshold

This article is only for general information and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

Does my project qualify for R&D Tax credits?

1. The project can only qualify if there is
   • not a “readily deducible” solution
   • there is “uncertainty” that it can be completed
   • it will need to be “worked on” for the solution to be reached
   • Under self assessment it is up to the taxpayer to decide whether the project qualifies so there should be a clear paper trail should you wish to claim
   • The advice from the HMRC R&D helpline was to see if there were people in the field and get their opinion on whether
   1. there is a solution available commercially
   2. if so, if there is any doubt that it can be done
   3. provided the research can be

What can I claim R&D tax credits for and how do I claim?

1. Any internal revenue expenditure associated with the project
2. If you use subcontractors you can only claim 65% of their costs for tax credit purposes.  This means you will only get 130% tax relief
3. Relief for capital expenditure should be claimed via the usual capital allowances regime
4. R&D tax credits can only be claimed against corporation tax so are only available to limited companies and Plc’s
5. The relief is claimed either by the corporation tax return or separate letter if that has already been submitted
6. You should be able to prove that the project is R&D and keep detailed summary of expenses

This article is only a summary of the main issues to consider and there may be other conditions which apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”

HMRC spam repayment claim email

A client of mine received an email directing him to a website which as you can see looks pretty realistic at first sight.  He was only forewarned by some spelling and grammatical errors in the original email.

To summarise HMRC do not communicate by email and if you are in any doubt ignore it, and at the very least speak to your adviser.

Hacked twitter account

I am usually quite careful of opening links on emails and generally ignore or delete any joke emails that do the rounds.  I was however caught out over the weekend when I got a direct message from an old friend asking if I was in “a picture”, as it was someone I trusted I opened the link and the problems started.  I then spent quite some time amending passwords and links, aswell as apologising to various people who had spotted it as spam.

The moral of this is to be extremely careful of clicking on any linksonline, make sure you have secure passwords which should be changed frequently, and finally ensure you have an up to date backup preferably on and off site.

This article is based on personal experiences and may not apply to your situation so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”

You may have heard about HMRC targeting people carrying on a business on Ebay, or bootsales.  HMRC are always keen to collect additional tax and there is quite alot of case law on the subject.  These come under the heading of badges of trade, and like many decisions this is based on the balance of evidence so each of the points will have an impact on the end result.

Profit seeking motive

Is the ultimate objective to make a profit?  This largely relates to whether the transaction is primarily for personal use or to generate a profit to live on.

Number of transactions

An occasional foray into Ebay or Boot sales although making a little profit does not necessarily indicate a trade, however regular listings or attendances will be stronger evidence of trade, and this is probably the main area that HMRC will be targeting on.

Changes to the asset

If some goods are purchased and changed to make them more marketable for sale this once again is an indicator of a trade.  This could for example be cleaning, polishing or mending some goods as it is this process which generates the profit.

Time between purchase and sale

If the goods being sold have been in the back of the garage or loft for several years and the reason for the activity is to clear them out this is not deemed as a trade, but a speculative purchase at a boot sale which is sold the following week would be a strong indicator of trade.

These are a summary of the main criteria which may be of relevance to Boot Sale sellers and Ebayers but are not exclusive.  HMRC have stated they are going to target this area and they have the resources to do so in order to raise additional taxes.

For more detail including the relevant case law there is a good ACCA article on Badges of Trade.  The details above are only a summary of the main criteria, so seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call.  Alastair Wood, AW Accounting, Gravesend – Accountants who “speak your language”