Archive for August, 2014

HMRC business record checks

Friday, August 29th, 2014

According to insurers PFP, HMRC business record checks are on the increase.

 In the tax year 2013/14 HMRC checked 5,515 sets of business records compared to just 3,431 checks in 2011/12, an increase of 60%. Interestingly, of the records checked 73% were found to have no significant errors.

Since November 2012, HMRC have adopted a fresh approach to their business record check visits. On the HMRC website we are advised:

“Customers who are more likely to be at risk of having inadequate records will be contacted by letter to arrange for HMRC to call them to go through a short questionnaire.

Depending on the outcome of this call, HMRC will confirm to some customers that no further action is required. Where some issues are identified, customers will be offered targeted self-help education options. Customers who are assessed as being at risk of keeping inadequate records will be referred for a BRC visit.”

The reasoning behind the record check initiative is to find businesses that are submitting tax returns based on inadequate information. If you record keeping is poor, then your tax return is likely to be inaccurate.

If you are required to have a visit from HMRC to check out your record keeping this is what HMRC advise you can expect:

If we feel you need a face to face visit, HMRC will contact you to agree a date and time. The visit will usually take around two hours.

On the visit the HMRC officer will:

  • ask you to explain how you run your business
  • note how you keep your business records
  • check a sample of your current business records – usually your records for the last four months and arrive at a decision as to whether your business records are adequate or not

If your records are adequate the visiting officer will tell you at the visit and then confirm it in writing a few days later. This will be the end of your business records check.

If the visiting officer finds your record keeping needs improving they will discuss this with you and your agent, if they are at the meeting. The officer will then advise what you need to do to make your records adequate and what will happen next.

We are happy to provide readers who are concerned about their business records with a preliminary assessment, and if required, advice on how to change their systems.

Employment Allowance uptake

Thursday, August 28th, 2014

Data released by HM Treasury at the end of July reveals that 725,000 employers across the UK are benefitting from the Employment Allowance.

The allowance reduces the amount of employer National Insurance by up to £2,000 in a full tax year. The deduction is automatically made by most payroll software products including HMRC’s online service.

It is estimated that up to 1.25 million businesses and charities will benefit from the Employment Allowance and approximately 450,000 employers won’t have to pay any employer National Insurance contributions at all.

Viewed regionally, the take up for the allowance seems to highlight variations in economic activity across the regions. Almost 30% of the claims made are by businesses in London and the South East of England. This is underlines the difficulty that government must be experiencing in directing the monetary value of these reliefs into the regions that are in most need of support. At present thriving businesses in greater London and the south east are benefitting from a further stimulus that poorer areas of the UK do not seem to be experiencing.

50% off qualifying capital purchases

Thursday, August 21st, 2014

The Finance Act 2014 introduced a temporary increase in the Annual Investment Allowance (AIA). From 1 April 2014 (for companies) and 6 April 2014 for the self-employed, the ability to write off qualifying capital purchases against your profits for tax purposes increased to £500,000.

This generous tax allowance will reduce to £25,000 on 1 January 2016. Any business that needs to invest in new plant or equipment should time their expenditure to make the most of this increase in the AIA.

How much is this worth?

Depends on the type of business structure you have created to manage your business. If you are self-employed (a sole trader or in partnership) you will pay income tax on your profits. The AIA allows you to deduct the full cost of qualifying capital acquisitions from your profits. For example, if you purchased plant for £100,000 and made taxable profits of £300,000 as a sole trader, you could deduct the full cost of the plant from your profits. At this level of profitability you would possibly be paying income tax at 50% so your £100,000 investment would actually cost you £50,000. Self-employed traders paying income tax at 20% or 40%, or companies paying corporation tax at 20% would save tax at proportionately lower rates.

This is not an opportunity to miss. As always planning is critical in order that any tax benefit is maximised.

Entrepreneurs get greater freedom to start a business from their home

Tuesday, August 19th, 2014

Budding entrepreneurs will be given greater freedom to start and grow a business from their home under new measures announced by the government on 15 August 2014.

Around 70% of new businesses start off in the home, and they contribute £300 billion to the economy. As part of its long-term economic plan to back businesses, the government wants to make it much easier for people thinking of starting a home business to do so with the law firmly on their side.

The new measures announced include:

  • The law will be changed so that landlords can be assured that agreeing to home working by tenants will not undermine their residential tenancy agreement. A new model tenancy agreement will also be made available shortly;
  • updated planning guidance will make it clear that planning permission should not normally be needed to run a business from your home; and
  • new business rates guidance will clarify that in the majority of circumstances home based businesses will not attract business rates.

The Business Minister Matthew Hancock announced the package at the first ever Home Business Summit, organised by the small business network Enterprise Nation, at the Enterprise Wing of Somerset House in London.

Business Minister Matthew Hancock said:

“There’s never been a better time to start a business, and even more people are choosing to start up from home.

It’s this spirit of personal endeavour and self-determination that is driving our economic recovery. But home businesses don’t just fire up the economic engines and create jobs, they turn dormitory towns into living communities, they keep our streets safer, and by driving down car emissions, cleaner too.

We know that starting up any business can also be hugely stressful and that’s why today I am announcing that the government will change the law to make life easier for Britain’s home businesses. We’ll give people the confidence they need to run a business from a rented home, making sure that the majority of home businesses are exempt from business rates and our aspiring entrepreneurs have the information they need to start up and grow.”

Interesting statistics:

  1. There are already 2.9 million businesses being run from entrepreneurs’ homes.
  2. Home based businesses contribute £300 billion in annual turnover to the UK economy.
  3. If 1 in 10 home businesses took on just 1 extra employee it would create 300,000 jobs.

On the face of it home based businesses can take encouragement from these announcements. Let’s hope that these will be the first of a number of initiatives to encourage entrepreneurs to take the plunge.

Transfer tax allowances to your spouse

Friday, August 15th, 2014

The Finance Act 2014 has introduced limited flexibility for married couples, or couples in a civil partnership, to transfer a part of their personal allowance to their partner.

The amounts involved are not substantial and there are a number of conditions that must be met. These include:

  1. The spouse receiving the transferred allowance must not be a higher rate tax payer.
  2. The receiving spouse must be resident in the UK for tax purposes.
  3. The amount of the allowance that can be transferred is limited to £1,050 for 2015-16, and 10% of the personal allowance in subsequent years.
  4. Neither spouse must be eligible to claim the Married Couple’s Allowance (MCA). This only affects couples where one spouse was born before 5 April 1935.

From a tax planning point of view this will benefit couples where one partner does not earn sufficient income to utilise all of their personal tax allowance, and the other partner is paying tax at no more than the basic rate.

The existing MCA will continue to be available to elderly couples that qualify.

If you were married before 5 December 2005 and at least one spouse was born before 6 April 1935, the husband can claim Married Couple's Allowance. HM Revenue & Customs (HMRC) reduces your tax bill by 10% of the Married Couple's Allowance to which you're entitled. The actual amount depends on the husband's income.

If you married on or after 5 December 2005 or are in a civil partnership and living together and at least one spouse or partner was born before 6 April 1935, the person with the higher income can claim Married Couple's Allowance.

HMRC reduce the claimant's tax bill by 10% of the Married Couple's Allowance to which he or she is entitled. The actual amount depends on the income of the spouse or civil partner with the higher income.

If one of you dies, or if you divorce or separate, you'll still get Married Couple's Allowance for the whole of that tax year.

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