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R & D boost for smaller businesses

Wednesday, November 4th, 2015

In a major boost for pioneering small businesses, the Financial Secretary to the Treasury, David Gauke, recently launched a new plan outlining how government will make it easier for small businesses investing in research and development to claim tax relief.

The two-year plan, which is a response to an HMRC consultation, aims to increase take-up of research and development (R&D) tax relief through raising awareness of the relief amongst small businesses and making it easier for them to apply.

The tax relief, which encourages companies to invest in costly new product development, helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development. Latest statistics for 2013-14 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

Financial Secretary to the Treasury David Gauke said:

R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.

That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.

The plan, ‘Making R&D Easier: HMRC’s plan for small business R&D tax relief’, was published 28 October 2015 and sets out that:

  • From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
  • HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
  • Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment. SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230 per cent of their qualifying R&D expenditure. In 2013-14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009-10.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

Payments to directors

Monday, July 2nd, 2012

Any payment made to a director as part of their remuneration package is generally subject to tax that is usually collected via the PAYE system. The payments made by the employer are allowable expenditure and reduce the employer’s taxable profits.

However, many smaller limited companies pay personal expenses on behalf of directors. These personal expenses do not form part of the director’s remuneration package and should not be included as an expense in the company’s accounts – a company may not deduct expenditure unless it is incurred wholly and exclusively for the purposes of its trade.

Which begs the question, how are these personal expenses of the director treated in the company’s accounts? Unless reimbursed by the director, such personal expenses are debited to the director’s loan account.

Of course the director may have introduced funds into the company at some time in the past in which case the debiting of personal expenses will simply reduce the amount owing to the director. Problems only arise when the director’s loan is overdrawn, in which case the director owes money to the company. Two tax complications arise:

1. Company liable to additional Corporation Tax charge.

If the director is also a shareholder in a “close” company, any overdrawn balance on a director’s loan account at the end of the company’s accounting year will create a potential Corporation Tax charge based on 25% of the amount overdrawn at the year end. For example, if John, a director and shareholder of A Ltd, has an overdrawn loan account with the company at their year end, 31 March 2012, amounting to £10,000 then a potential liability to Corporation Tax will arise of £2,500. This liability will be reduced or cancelled if the loan is reduced or repaid in full before 31 December 2012 (9 months after the accounting year end). Even if the loan is repaid after the nine month deadline, the company can apply to have the additional tax repaid although there may be a significant delay. Quite often the overdrawn balances are cleared by paying dividends which are credited to the loan account within the nine month period.

2. Director may face a personal tax charge.

If A Ltd in the example quoted above, had made no interest charge to John for the loan of the £10,000 then HMRC would seek to tax John as if he’d received a benefit (the interest forgone). If John had owed more than £5,000 at any time during the year to 5 April 2012 he would be assessed to a benefit in kind charge. HMRC currently use a 4% rate to calculate the benefit which means John would pay tax on a benefit in kind charge of £400. Additionally, A Ltd would be liable to a Class 1A National Insurance charge on the same amount, i.e. on £400 assuming £10,000 was owed for a full year.

To avoid the personal tax and Class 1A charge, A Ltd could charge John for the statutory interest by crediting interest received in its accounts and debiting John’s loan account with the same amount of £400. John would then need to repay £10,400 before 31 December 2012 in order to ensure HMRC would withdraw the additional Corporation Tax charge.

Accounting for directors loan transactions can be complicated especially if the company makes an interest charge to the director. Please call if you need advice.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

Tax dodgers beware

Monday, July 2nd, 2012

At the end of May 2012 HMRC announced that six new taskforces had been created to target tax evasion in a number of specific locations:

• Indoor and outdoor markets in London
• Taxi firms in Yorkshire and East Midlands
• Property rentals in East Anglia, London, Yorkshire and the North East
• Restaurants in the Midlands

These specialist teams are trained to undertake intensive bursts of activity and are expected to recover more than £23m in unpaid tax.

The teams will visit traders to examine their records and carry out other investigations.

Readers whose businesses fall within these new remits may be advised to take a hard look at their record keeping ensuring that all business transactions have been correctly recorded; much better to be prepared. Do not wait for the brown envelope to drop on your doormat…

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

July 2012 – busy month…

Monday, July 2nd, 2012

Although we have summarised the various filing and tax payment deadlines for July in the tax diary it is worth looking at the detail – July is a busy month.

6 July 2012

Filing deadline forms P11D, P9D and P11D(b) 2011-12. As this newsletter is being published on 5 July we sincerely hope that readers have already filed these annual returns that disclose benefits paid to employees and directors during 2011-12.
Distribute copies of P11D and P9D forms to employees.
Redundancy report. Employers who have provided a redundancy package during 2011-12, which includes benefits in kind and which over its lifetime is estimated to be worth more than £30,000, must report details to HMRC by today.
Unapproved share schemes. Deadline to inform HMRC of any reportable events for 2011-12.
Tax approved share schemes. Return deadline on statutory forms due today in respect of tax approved share schemes including Enterprise Management Incentive schemes.

7 July 2012

Retired employees’ non-cash benefits. Any non-cash benefits provided to retired employees under an employer financed retirement benefit scheme should be reported to HMRC by today. Benefits are taxable unless exempted or below the £100 per annum de minimis.

19 or 22 July 2012

Payment of Class 1A NICs for 2011-12. Payment deadline is 19 July if paying by cheque or 22 July if paying electronically – payments must clear by 22 July if paid electronically.

31 July 2012

Late filing 2010-11 self-assessment return. If you have still not filed your SA return for 2010-11 by today, a further tax related penalty will be charged. The penalty will be £300 or 5% of tax liability whichever is the higher amount.
2nd payment on account 2011-12. This amount is usually based on 50% of the reported self-assessment liability for 2010-11, unless adjusted.
Tax credit renewals. Deadline to renew tax credit claims for 2012-13 and to return final income figures for 2011-12. It is possible to provide estimated figures for 2011-12 but the final figures must be provided by 31 January 2013.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

VAT refund for self build

Monday, July 2nd, 2012

It is possible to register a self-build application for VAT purposes and reclaim any VAT charged on certain materials and services paid out. In a recent tax case an individual and his partner decided to build a new home for themselves and two children from a previous relationship. The building was actually two separate buildings (one for the kids) linked by timber decking. HMRC refused the claim to include VAT recoverable for the construction of the separate building.

On appeal the Tribunal allowed the claim, arguing that the singular word ‘building’ should be construed as including the plural ‘buildings’ so that the claim for the two buildings should be allowed.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

Tax Diary July/Aug 2012

Monday, July 2nd, 2012

1 July 2012 – Due date for corporation tax due for the year ended 30 September 2011.

6 July 2012 – Complete and submit forms P11D return of benefits and expenses and P11D(b) return of Class 1A NICs.

6 July 2012 – Deadline for submitting form 42 (reporting of transactions in employment related securities).

19 July 2012 – Pay Class 1A NICs (by the 22 July 2012 if paid electronically).

19 July 2012 – PAYE and NIC deductions due for month ended 5 July 2012. (If you pay your tax electronically the due date is 22 July 2012.)

19 July 2012 – Filing deadline for the CIS300 monthly return for the month ended 5 July 2012.

19 July 2012 – CIS tax deducted for the month ended 5 July 2012 is payable by today.

31 July 2012 – Payment of self-assessment, second payment on account for 2011-12 due today.

31 July 2012 – Deadline to renew tax credits claim for 2012-13 and provide details of income for 2011-12.

1 August 2012 – Due date for corporation tax due for the year ended 31 October 2011.

19 August 2012 – PAYE and NIC deductions due for month ended 5 August 2012. (If you pay your tax electronically the due date is 22 August 2012.)

19 August 2012 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2012.

19 August 2012 – CIS tax deducted for the month ended 5 August 2012 is payable by today.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

VAT Flat Rate scheme

Thursday, June 7th, 2012

The VAT Flat Rate scheme provides smaller businesses with a number of options that can often create real cash savings. Benefits include:

* Simplified administration, quicker to produce returns
* Depending on the market sector your business operates within, you may be able to reduce your overall VAT payments.

To qualify, your annual turnover must not exceed £150,000, excluding VAT. Once you are in the scheme you are not required to leave until your annual turnover exceeds £230,000.

If you register for this scheme you still add VAT to your sales in the usual way. Instead of calculating the amount you need to pay to HMRC as the difference between your output VAT (the VAT you add to your sales) and your input VAT (the VAT added to the goods or services you buy), you simply calculate the total of your sales including VAT and multiply this figure by the flat rate percentage. Income for these purposes, your flat rate turnover, includes:

* VAT inclusive sales at standard rate, zero rate and reduced rate supplies.
* Sales of exempt supplies such as rent or lottery commission.
* Sales of capital expenditure goods – unless you have previously reclaimed VAT when the goods were purchased, in which case you have to pay VAT at the standard rate and not the flat rate.
* Sales to other EU countries.
* Sales of second hand goods. If you have a lot of turnover in this category you may be better off using a margin scheme.

Obviously, the higher the flat rate percentage, the less beneficial the scheme will be in reducing your overall VAT payments.

Flat rate percentages vary between 4% and 14.5%.

For example a business repairing personal or household goods would save £2,000 per year in the following scenario:

1. Flat rate that applies 10%.
2. Turnover £100,000.
3. Turnover including VAT £120,000.
4. Purchases of parts and services £30,000, VAT input tax added £6,000.
5. Annual VAT bill without applying Flat Rate Scheme, £14,000 (£20,000 – £6,000).
6. Annual VAT bill applying Flat Rate Scheme, £12,000 (£120,000 x 10%)

Additionally you can reclaim the input tax charged on capital assets bought where the total single invoice value (including VAT) is £2,000 or more.

As a bonus, in the year following the registration of your business for VAT, you can deduct 1% from the flat rate percentage. So in our example, if a full year’s discount was available, the savings in year one would actually be £3,200. (£14,000 less £120,000 x 9%).

(Please note: This 1% reduction in the flat rate would not apply to businesses who had been VAT registered for more than a year when they join the Flat Rate Scheme.)

The scheme does not suit businesses that have a high proportion of zero rated sales or that have high levels of input tax reclaimable on purchases of goods and services. And it may not be possible to produce real cash savings if your business falls into one of the higher flat rate percentages.

You have to make a formal application to join the scheme and it is well worth crunching the numbers to see if you would benefit. As always we would be happy to do this for you.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

Furnished Holiday Lets

Thursday, June 7th, 2012

Does your holiday home qualify as a Furnished Holiday Let (FHL) property? And if it does, what are the tax advantages?

Does your property qualify?

From April 2012 the following conditions apply:

1. The property must be situated in the UK or EEA.
2. The property must be available for commercial letting as holiday accommodation for at least 210 days per annum.
3. The property must be let on a commercial basis for at least 105 days per annum.
4. The property must not be let for periods of longer term letting. Accordingly, for 7 months of the year the property must not be in the same occupation for more than 31 consecutive days and must not exceed more than 155 days in a tax year.
5. Periods of longer term letting do not count towards 3 above.

The periods to which you need to apply these tests are:

a. For a continuing let, the tax year.
b. For a new let, assuming that property did not qualify as a FHL in the previous year, apply tests to first twelve months of letting.
c. When letting ceases apply tests to last twelve months of letting.

There are complex rules that allow you to average the occupancy figures where you have more than one property in your FHL business. All of your UK FHL properties form a single trade for tax purposes. Any EEA properties form a separate trade. So you cannot average UK and EEA numbers. This averaging process can be useful where you have one or more properties that do not qualify and others that more than qualify for FHL status.

If you pass the test in 3 above for one year but fail it for the next 1 or 2 years, then you may be able to elect for those years to be treated as qualifying.

What are the tax advantages?

As your FHL business is considered to be a trade you will be able to avail yourself of the following reliefs that would not be available to non-FHL property letting businesses.

A. You can claim capital allowances on the purchase of furniture, white goods and other qualifying expenditure.
B. You may qualify for certain Capital Gains Tax reliefs including Entrepreneurs’ Relief, Business Asset Rollover Relief and relief for gifts and similar transactions.
C. FHL profits count as earnings for UK pension relief.

Beware of losses though, as these can only be carried forward against future FHL profits.

If you would like to see if your property holding(s) qualify for these important tax advantages, please contact us and we will help you work through the necessary calculations.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

Equitable Life tax bonus

Thursday, June 7th, 2012

If you are due, or have already received, compensation in respect of the Government’s maladministration of Equitable Life pensions and policies you may be interested in the tax position of these payments.

1. There is no need to declare receipts to HMRC as they are not subject to Income Tax, Capital Gains Tax or Corporation Tax.
2. Payments under the scheme will not affect recipients’ eligibility for working or child tax credits.
3. For social security and social care purposes the payments will be classed as income (if linked to retirement annuities), or capital if linked to any other policies.
4. Payments to the estates of deceased policy holders will not be subject to Inheritance Tax.

Any interest received in addition to the compensation or rebated premiums will be taxable regardless of whether it has been taxed at source or not.

For a full run-down on the compensation scheme you can view FAQs at http://equitablelifepaymentscheme.independent.gov.uk/index.htm

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike

More bogus emails to ignore.

Thursday, June 7th, 2012

HMRC has issued a press release warning taxpayers about possible fake or “phishing” emails sent out by fraudsters. Apparently there is usually a significant increase in this activity in the lead up to the 31 July tax credits renewal deadline.

HMRC do not contact taxpayers by email about their tax affairs.

They have requested that you forward any suspicious emails to phishing@hmrc.gsi and then delete the email from your PC.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike