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VAT SERIES - Acting As Agent or Principle?
September 16, 2024
All
VAT
Ask a small businesses providing services to the public if they would like to be VAT registered and you will struggle to find a yes. Why? Because selling to the public, who can't reclaim VAT, will create a very difficult commercial situation. Either you become 20% more expensive overnight and potentially lose customers to cheaper competitors, or you keep your prices the same and make a smaller profit on each job. Not really a choice you want to make.
VAT SERIES - Acting As Agent or Principle?
September 16, 2024
All
VAT
Ask a small businesses providing services to the public if they would like to be VAT registered and you will struggle to find a yes. Why? Because selling to the public, who can't reclaim VAT, will create a very difficult commercial situation. Either you become 20% more expensive overnight and potentially lose customers to cheaper competitors, or you keep your prices the same and make a smaller profit on each job. Not really a choice you want to make.
Employment status - Are Your Subcontractors Genuine?
July 14, 2024
All
Other
As a businesses grows and the workload becomes too much for one person some form of help will be needed. The options tend to boil down to taking on an employee or engaging subcontractors. Each business will have different factors that influence which option to aim for. Typically subcontractors are the goal as it reduces commitment and complexity. It also tends to provide a positive tax outcome for both the contractor and the subcontractor….and it's because of this that HMRC take an interest. They will want to ensure the correct status has been applied and in turn tax paid in line with this. If errors are made they can be costly resulting in backdated assessments to when the error began with penalties and interest potentially charged on top. Very quickly this can run into thousands.
VAT Series - The Registration Threshold and Dangers of Missing It
June 10, 2024
All
VAT
The current threshold for mandatory registration if £90,000. The threshold relates to turnover (sales) rather than net profit. It is calculated on a rolling 12 month basis rather than simply looking at the last set of accounts which could give a different result. Once the threshold is reached you only have 30 days to inform HM Revenue & Customs. As an example say your sales reach £92,000 in February, following the end of the month you have 30 days to register with the obligation to start collecting VAT taking effect from April 1.
VAT Series - Artificial Separation
June 10, 2024
All
VAT
Registering for VAT can be compulsory (see VAT SERIES - The Registration Threshold And The Dangers of Missing It) or voluntary. Why would someone chose to register for VAT voluntarily? Typically if all your customers are VAT registered and able to reclaim the VAT you charge them it won't affect how competitive your pricing is. It will also allow you to reclaim VAT thereby reducing your business overheads and increasing your profit margin. But what if your customers are not able to reclaim VAT? This can present a real challenge as VAT registration will either increase your fees by 20% or you may feel the need to absorb some, if not all of the cost yourself. Understandably for such businesses the idea of having to register for VAT is not very welcome.
Property Series - Deductible Expenditure
November 15, 2023
All
Property
Calculating taxable property income (gross rents less allowable deductions) is not as straightforward as it may at first appear. A common mistake made is assuming that everything spent in connection with the rental property is an allowable expense. However, the correct treatment is far less straightforward. We will start with the less tricky areas. Here are typical expenses to see in residential property accounts:
Property Series -Rent a Room Relief
November 1, 2023
All
Property
Rent a room relief can provide a helpful simplification when a lodger is taken in. Some will be surprised to think of a tax implication when renting a spare room to a lodger but the income is considered as Residential Property Income. The relief provides an allowances of £7,500 per year. If gross rental income is less than this amount, no reporting to HM Revenue & Customs is required. Given this would allow for a room to be let at £625 per month it will be relatively helpful to many. Also if the gross rent is more than the allowance it will still be helpful as it can effectively act like a flat rate expense. For example a room let for £700 per month would yield £8,400 per year. Using the Rent a Room Relief the taxable income would be reduced to £900.
Property Series - Relief for Finance Costs
November 1, 2023
All
Property
Mortgage relief is an even bigger issue now interest rates are soaring. A Common pitfall is seeing people claim all mortgage payments including the capital repayment element. Many with rental properties will have associated mortgages. Some will be interest only while others include capital repayment. When preparing property income and expenditure accounts and completing the UK Property pages of the Tax Return what should be considered?
Property Series - Residential Letting Income....Investment or Trading?
November 1, 2023
All
Property
Income from residential property letting would typically be taxed as investment income. The income and expenditure would be reported on the UK Property pages of the Tax Return. What difference does it make? Investment income is not subject to National Insurance (Class 2 & 4) whereas trading income is. For those with other sources of income this will be an excellent outcome as it reduces the tax due.
Property Series - Furnished Holiday Lettings
November 1, 2023
All
Property
Furnished Holiday Lets (FHL) have a slightly different tax treatment to residential property income. Although many aspects will be similar certain advantages come from being treated as an FHL. Because of this it's not just a matter of choice but the designation must be earned. To qualify as a FHL the property must be...
MTD For Income Tax - What's Happening Now?
June 15, 2023
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MTD
It was all the way back in 2015 that MTD was announced as the end of the tax return. 8 years later income tax remains untouched by MTD. It quickly morphed into Making Tax Digital for VAT. This took effect from April 2019. After more delays April 2024 was fixed as a date by which most sole-traders would need to begin reporting quarterly and meeting the specific record keeping requirements.
MTD For Self Assessment - Is It Time to Get A Bookkeeper
October 25, 2022
All
MTD
First things first, what is Making Tax Digital for Self-Assessment( MTD for ITSA)? Put simply it is the requirement to keep digital business records. Essentially keeping a digital analysis of income and expenditure in a format capable of meeting the reporting requirements. The actual receipts themselves do not need to be stored digitally, although if they are scanned it can save space and make it easier to access them. Sole traders are required to keep business records for five years from 31 January following end of the tax year they relate to. Ever been tempted to bin the records early? Failing to keep records for the statutory period can incur a penalty of up to £3,000 for each tax year.
Motor Expenses - Which is Best Cost or Mileage?
November 29, 2021
All
Other
When it comes to calculating motor expenses there are a couple of methods available. What are they and what are the benefits or drawbacks of each method? Could careful planning reduce your income tax bill?
Capital Gains Tax - Selling a Residential Property
November 22, 2021
All
Other
Many will know that if you purchase a residential property, live in it for the entire period of ownership and sell it for at a gain, the entire gain is covered by principle private residence relief and no tax will be due (also no reporting of the gain is required)...
Electrifying Savings - Electric Company Cars
November 15, 2021
All
Other
The amount of electric cars on the market is rapidly increasing along with the range they are capable of with a number of models capable of 200+ miles. For anyone with a company car or even running their own business through a limited company the tax savings available with electric cars should not be underestimated (these savings are not available for sole traders or partnerships but could be factored in when considering whether to incorporate the business).
IHT - Avoiding A Common Pitfall
October 18, 2021
All
IHT
7 year rule, you may have heard of it…but what is it? Gifts made within the 7 year period prior to death, which are not exempted by means of one of the annual allowances, are brought back into the estate for calculating IHT. There is a rule in place which effectively discounts the amount of IHT charged for gifts given more than 3 years prior to death. It is known as taper relief and is provided for on the following scale
IHT - Normal Gifts Out Of Income
October 11, 2021
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IHT
This is an interesting opportunity as technically there is no specific limit, however strict criteria must be met for a gift to qualify as a 'normal gift out of income'. Firstly it has to be normal (in this context normal is referring to the frequency rather than it being an odd or strange gift in some way). There is no need for it to be a monthly gift or given on a specific day every month, but there should be a good level of expectation to the gift, in other words it should not come as a surprise. Another element to the normality criteria is the amount should be consistent or at least linked to something which is consistently covered. There are further technical points by which a gift can be measured to determine if it qualifies as a normal gift out of income which we won't go into here.
IHT - Small Gifts Allowance
October 4, 2021
All
IHT
The small gifts exemption might be small (as described and compared with other allowances) at £250, but in certain circumstances could be very valuable if used well. The exemption is on gifts up to £250 per tax year to individuals. An important point to keep in mind is if the total value of gifts to an individual exceed this, even by £1 the allowance is lost, in which case the gift could begin to use up the annual allowance of £3,000.
IHT - Gifts in consideration of a marriage
September 27, 2021
All
IHT
A wedding day is traditionally a very happy (if not slightly stressful) day and it's not just because of the inheritance tax saving possibilities! But they are what we will focus on for now. If Stan's daughter were to get married he could make a gift of up to £5,000 in consideration of that marriage inheritance tax free. This falls within the exemptions of gifts in connection with marriage and civil partnership. The general allowance are:
IHT - Annual Allowance
September 20, 2021
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IHT
There are a number of annual exemptions for certain gifts when considering IHT. These have the effect of removing the gift from the estate all together. They will not be brought back into an estate if the donor dies within 7 years of making the gift if the allowance has been correctly used. This article will discuss the annual exemption of £3,000.
IHT - Residence Nil Rate Band
September 13, 2021
All
IHT
Let's kick off the allowances with a big one. The residence nil rate band, a relatively new allowance to IHT. At the time of writing the residence nil rate band for inheritance tax is £175,000. What are the qualifying criteria? There are some very detailed rules when it comes to downsizing or moving into care homes but we will keep it simple for this series. To qualify we are looking at a residence (a home) which was used by the donor as their home.
Inheritance Tax - What you need to know
September 6, 2021
All
IHT
It has been described as Britain's most hated tax and almost uniquely unpopular. Quite a reputation. But what is it and is it likely to affect you? Inheritance tax is a tax charged on the estate (broadly the assets less debts less the nil rate band) of an individual who has passed away. At 40% the amounts of tax can be substantial. It would be easy to assume that it will only affect very wealthy and well off individuals, but this could be a potentially expensive assumption to make.
Trading Allowance - Is it right for you?
May 21, 2021
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Other
Thinking of starting a new business on the side? How can the trading allowance help you? This article will introduce you to it and how it works. The trading allowance was introduced from 2017-18 onwards. The allowance is £1,000 and can be used in two different ways. If after the pandemic you are thinking of trying a new side business, it could be very beneficial in reducing reporting requirements while you start out or reducing taxable profits. The following examples illustrate when the allowance could be used and how it is beneficial.
What's mine is yours - Marriage Allowance
August 1, 2019
All
Other
In 2015-16 a new allowance was made available to married couples....did you hear about it? The marriage allowance allows one spouse to transfer an element of their unused personal allowance to the other. For 2018-19 the maximum element which can be transferred is £1,190. Previous years were slightly lower but very similar. What’s the purpose of this allowance? If one spouse is earning above the tax free allowance and the other isn’t, perhaps only working part time or not at all, it increases the tax free allowance of the higher earning spouse with the saving being 20% of the transferred amount. For 2018-19 the tax saving is £238.
Just in time
June 28, 2019
All
Other
You’ve finally done it, started your own business, it’s been a goal for a long time and now it’s happened, WELL DONE! It can be exciting, getting new clients, setting up with new equipment and getting everything just right. During all the excitement did you register with HM Revenue & Customs? When should this be done by? And does it matter if you haven’t registered already?
Is it time to strike out on your own?
June 28, 2019
All
Other
Thinking of starting your own business? Lots of people would love to work for themselves, are you one of them? It can be an exciting prospect. Why? The reasons can vary. Some think of the work life balance it will allow. For others the idea of being your own boss is hard to reject. It can offer greater earning potential or maybe it’s an opportunity to change career path and start doing something you are passionate about.
Penalty charge - Case report
March 27, 2019
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Other
I was recently approached by a new client who had been charged penalties in excess of £5,000… an eye watering sum for anyone. The first point to make is that the penalties were valid and had been raised correctly What would you do in this situation? If you had to pick a realistic number to reduce the penalties to, what would you settle for? The specific circumstances of the case were considered and an appeal was submitted based on these. The appeal did not challenge the validity of the penalties. As mentioned they were perfectly valid and no error had been made by the tax office.
Property Income Pitfalls
January 8, 2019
All
Property
With so many TV shows dedicated to buying, renovating and renting properties out it must be a subject that captures the interest of many. It looks to provide an exciting way to work and earn. Portfolios can be steadily increased and a legacy can be built. Others fall into the role after buying a new home and keeping their first house for rental, a source of extra income and potentially it will increase in value over the years.
Record Retention - Could you go digital?
January 8, 2019
All
Other
Some people just can’t bring themselves to get rid of anything others are ruthless at clearing out unused bits and pieces. At times the choice is made for us. If you are a self-employed trader, how long must you keep your business records supporting your tax return? The answer: 5 years after the 31st January filing deadline for the year in question. For example records relating to the year ended 5th April 2017 must be kept until 31st January 2023.
MTD for VAT - How did we end up here?
January 8, 2019
All
MTD
Making tax digital for VAT is fast approaching its full rollout. There has been a lot of talk on the subject but with so many changes and updates it’s easy to get lost. Given that it has come from the original idea of doing away with the personal tax return it’s reasonable to ask ‘How did we end up here’.....and where is here? If you are VAT registered what does MTD for VAT mean to you? When will it come into effect?
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