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May 312016
 

With the UK’s government announcement of digital tax accounts in the last budget, it seems 24/7 access to tax accounts and a pay as you go tax system is nearer than we think. As of today’s date in 2016 all small businesses and individuals already have access to their own digital tax account where information on  taxes paid and how such taxes paid are spent by the Revenue  is available. The intention is that by 2020 the full range of HMRC tax services will be available through digital accounts and most individual tax payers and businesses will be reporting their taxes via quarterly reporting using their digital tax accounts.  The advantage of this (to the tax payer – the Revenue says) is that the tax position will be fully updated at all times rather than at the tax year-end and tax  will be paid on a more regular basis.

 

From an accounting point of view this makes sense. Whilst we are still processing accounting data historically, the need for more real time accounting (supported by cloud technology) provides better management information not to mention cash flow management.  Helping tax payers manage and plan their taxes is the essence of what I do. Helping tax payers to know their tax liability on a more real time basis and planning how these taxes will be paid can only make for a happier client.

 

Additionally, bringing all related taxes in one place should reduce the time spent on tax administration.  As with all new systems, there always more to it than meets the eye, and the current debate in the accounting community concerns how the new digital system will affect individuals including landlords, as the first tax payers to be affected by quarterly tax reporting.  The big question asked to the Revenue “is the requirement to update quarterly the submission of four tax returns?” has seen HMRC giving a resounding “no”.  However many fear the quarterly reporting is the precursor to mandatory reporting – so that what started off as an option will become the requirement as part of the tax return processes.  Quarterly reporting, if it does become mandatory will be a burden to many micro businesses, and it is hoped that HMRC’s response to this will support the transition in 2018 for most micro businesses will have to start quarterly reporting.

 

So what does quarterly reporting mean under the new digital tax regime?

HMRC’s Making Tax Digital report gives the changes under four headings

  1. Tax simplified
  2. Tax in one place
  3. Making Tax digital for businesses
  4. Making tax digital for individual tax payers

A look at what the Revenue is doing under all four headings gives all the indication that we are heading in the right direction to make tax more manageable, flexible, up –to-date and accessible.  The issue that many accountants have voiced, however, is that for self-assessment tax returns, the real time proposals are a completely new system (compared to the transition that was made from manual to real-time payroll where there was already a system in place); and many micro businesses who currently do not use real time payroll will struggle. That this is a fact is no doubt.

There are   many one-person businesses operating without the need for any digital platform, and asking them to switch digital reporting will be tough.  The HMRC reports states that the Revenue understands that taxpayers need varying levels of support, and as such all tax payers will receive the data and services relevant to them.  This is at least an acknowledgement of the issues with extra support to include face to face help, phone-in assistance and help through the voluntary and community sector.

 

The move to digital tax returns certainly sound daunting, but if the processes of RTI (real time information) for payroll is anything to go by, it should soon sit in our normal processes once the full extent of what is required is grasped, and appropriate systems are put in place . This is not to say the transition will be easy for many particularly for those who will not find it easy to transfer to a digital platform for one reason or another.

 

There are of course other issues such as what will happen to those who will not keep up with quarterly update for one reason or another.   The big techie questions of security and technology are being asked by the profession to which HMRC will no doubt provide the assurance needed.

 

However it pans out, for all UK tax payers – digital tax filing is coming, so get ready and make sure you get the business and accounting support you need.

 Posted by at 4:53 pm
Feb 142016
 

Running your own business is no mean feat especially if you are a micro business entrepreneur in charge of all aspects of running your trade. In the UK, once you have started to trade you are responsible to inform the tax authorities by 5th October following the end of the tax year in which your trade commences. This can get quite complicated given that the tax year in the UK runs from 6 April to 5 April. To keep it simple it is best to register as soon as possible. Registering with the Revenue is easy enough using HMRC’s website. However, in addition to your annual tax return, you may be required to register for other taxes when these become applicable for e.g. VAT and payroll.

If you run your business as a limited company, you are required to report both to Companies House and HMRC for annual returns, accounts and corporate tax returns. For even the smallest companies, these returns can be missed if you are not keeping up with the various deadline dates. Knowing what is required and when to provide the information is one area many micro business owners find most frustrating in running their business.

Working with deadlines and managing these deadlines is necessary to help with you with meeting these accounting and tax responsibilities. Both HMRC and Companies House send out reminders, which are very helpful, but owner-managed business may be forgiven for leaving these for the last minute. Deadlines are useful both from the perspective of the accountant and the business owner as they help to plan workload and provide a cut off time period for which trading results can be reviewed and analysed.

Using a diary or year planner is one way of helping you to meet your accounting and tax returns deadlines. A year planner is a useful tool that you could adapt to suit your specific business needs. Another planning tool is the use of the electronic calendar attached to your email account. With many systems offering merged view of all business files and available to view on related devices, an electronic planner is definitely the way forward particularly with the ability of electronic reminders/prompts.

Visual aids are still useful to support electronic system such as my Business Tax Time shown below. If you think you could benefit from such a visual tax planning aid, get in touch to access this free business planner – tailored to your business.Business Time line

 

 Posted by at 2:11 pm
Nov 042015
 

Missing a tax deadline may not be the worst offense you can commit, but it can and should be avoided as much as possible. Most people are very intent on keeping on top of their tax returns obligations and avoiding a fine is definitely a part of their tax submission plans. We all know what they say about “the best laid plans”…they can get waylaid when life and busyness gets in the way. The Taxman however will not be put off and the fines that are now in place in the UK for missing the tax return deadline are:

  • £100 for missing the deadline date plus 5% of tax due for over 30 days late.
  • Daily penalties of £10 per day for up to 90 days late (up to a maximum of £900.
  • 5% of tax due or £300 if greater for being six months late.
  • 5% of tax due or £300 if greater for over twelve months late.

How late filing can happen

Late filing of tax returns can occur for many reasons. Some people can be anxious about filing their tax return, and such anxiety can result in putting off the submission and the incurring of a fine. For other tax payers, there can be some misconceptions about filing a tax return which may end up in a fine. Two such misconceptions are given below.

Tax return misconceptions

  1. “I don’t make a profit so I don’t need to submit a tax return”. This misconception lies in the opinion that most people have of the Revenue – they only want to collect taxes! This is in fact just one part of the Revenue’s tax jurisdiction. The request to submit a tax return is one of the ways the tax authorities are informed of the tax payer’s tax position – so if you are in business and have not made a profit, completing your tax return is the way that this is communicated. The non-submission of a tax return is likely to have the tax authorities thinking there are profits to report, and therefore it is wise to put their mind to rest by making the submission.
  2. I didn’t make any sales, so I don’t have to submit a tax return”. If you are in business and have commenced trading, not making sales, is a disappointment to say the least, but is not a reason not to submit the tax return. Similar to the point above, the Revenue will only know you made no sales within that reporting period if you report it on your tax return. As you would have incurred expenses in support of your intended sales, these expenses need to be reported to give a true picture of your trading position for that period. Additionally, the net loss that is the result for any tax period is available to be set against future profits. Not reporting these losses can mean losing the offset benefit and the possibility of paying higher taxes on future profits.

Tax filing dates in the UK

In the UK we are allowed nine months to make a tax return submission, which by comparison with some other countries is very generous e.g. France which allows non residents up to 19th May to submit a tax return after the end of the calendar year; and in Denmark by 1st May.

A planned submission of your tax return can help you to utilize this generous submission time period by using any part of the submission time line after the end of the tax year that suits you – both for the filing and making the payment. This not only puts you in control – averting the panic of unplanned last minute submission, but can also help with planning the tax payments (if there are any tax liabilities). Completing your tax return early, will inform you of your tax position, and you can use the early preparation to pay off your taxes before the final payment deadline.

Getting help

Getting help with your business record keeping and tax return obligations is one of my mantras. Help does not have to cost, but it must be sought out to determine usefulness to your particular situation. Talking to others in your business network groups or with your friends and family may provide information about help that is available. HMRC has a free tax submission facility which you can take advantage of. This is particularly useful if your tax return is simple.

If you do have to pay for help, be realistic about the cost of such professional service as it relates to the level of support you require. Like all services, you may not need to have all that is on offer, but only what is necessary to your current status. Make sure you check out the services being offered and make price comparisons if necessary.

Think of the payment to get your tax return done on time as an investment in your peace of mind. With your tax return done you will have time to concentrate on your trade or personal life, keep the Taxman happy and be free of the prospect of getting a late penalty fine!

Oct 032015
 

A YouGov 2015 survey reported that well over half million UK micro businesses are anxious about their accounting and tax responsibilities. This anxiety causes missed tax filing deadlines which then incurs fines.  In our information frenzy world it is not too difficult to run into overwhelm. Bombarded by at least fifty emails a day and the increase in online adverts plus the convenience and the lure of social media all add to the overwhelm.  If you are one of these micro businesses then read on to find out three solutions you can implement.

 

  1. Plan to work. We all know we should plan but often find it hard to stick to the plan. It comes down to making  the decision – plan to do the action. The act of planning puts you in control of your time and resources. It  means that whatever the outcome at the end of your working day you are fully on board with what you accomplished and what you have yet to do. Planning means prioritising – putting high on your list tasks that you value over others. There may be monetary or other altruistic reasons for giving these tasks high priority, but putting them high on the list will ensure they get done in a timely fashion.

 

  1. Get help. Getting help does not have to cost you too much, if anything. This needs to be thought through properly to reduce your time costs and any real costs involved. Grabbing the first offer of help may not be the most cost effective since this may cost your time in having to redo the work. Start by writing down the help options available and their respective costs. Talk to someone about it and then short list your options making sure you factor in contingency if the help does not work. Where help will cost money check that you are getting value for money and that the time saved and money paid by you not doing the work is more than compensated by higher income generation from your business.

 

 

  1. Take time off. This is perhaps the most difficult of this three-part solution. Our information led, social media fed world seem to have generated more to do than any other age. Whist surfing the web and social media may be a form of rest and relaxation for many and for others “another thing to do”, the decision of what constitutes rests is very much an individual one but again needs conscious deliberate planning. Getting the right perspective on what rest means for you will make rest more achievable and worthwhile.

 

Thinking about deadlines that are both externally and personally imposed and the consequences of meeting or not meeting these deadlines would be a good place to start in implementing these three simple solutions. A good analysis of these will reveal that some of these deadlines can be planned in such away that gives you time for rest. In other words you don’t have to do it now.  Having a visual aid such as time line may help.  You can access my free time line and start putting overwhelm behind you!

 Posted by at 9:39 am
Sep 132015
 

Dividend tax changes

Taking a combination of salary and dividends has always been the way micro business owners manage their withdrawals from their personal company; with dividend income having a more favourable tax allowance.  This is set to change with the removal of the 10% tax credit on dividends. From April 2016, £5,000 will be allowable as a tax allowance with dividend above this amount payable at various rates – 7.5% for basic rate tax payers and 32.5% for higher rate tax payers. More tax planning at basic tax rate level (earnings up to £31,785 for 2015-16) will need to be done to ensure combination of personal allowance and dividend tax credit are used wisely. Contact us  to discuss your dividend-salary combination for 2016-17.

 Posted by at 8:13 pm
Sep 132015
 

The government’s Pension auto enrolment is now a reality for all but the neweRetirementst employers. Regardless of the size of your business and the number of employees you have, you are required to make a response to The Pension’s Regulator about auto enrolment.

Communicating with The Pensions Regulator

Communicating with The Pensions Regulator does not mean you have to auto enrol employees, it means you are indicating whether or not you have employees to auto enrol. As with all aspects of HMRC, non-communication is always the issue which can trigger a fine or worse. So, the first thing with auto enrolment is that you must communicate with The Pensions regulator even if you have no employees to auto enrol.

Exempt Employers

Some exempt employers (not required to set up an auto enrol pension system) as imposed by the Pensions Act 2008, are those with employment where the employer has the employment contract for e.g. husband and wife director/employees or those employers working with personal service companies (see my blog on personal service companies) or a single director owner-managed business where the owner is the only person involved in the business. These employers do not need to comply with auto enrolment.

Eligible, Non-eligible and Entitled workers

If you have been following the news/discussions about auto enrolment you might have heard the terminologies: eligible, non-eligible and entitled workers. These are the employees (if you are not an exempt employer) you need to auto enrol either because they meet the criteria or because they have the option to be enrolled. Those who must be enrolled (eligible employees) earn over £10,000 (or pro rata this amount if they work part-time). The non-eligible employees earn between £5,824 and £10,000 (or pro rata if part-time). Entitled workers earn £5,824 or less and who are offered a chance to join the scheme.

Nominating a Contact

If you have received a letter from The Pensions Regulator, indicating that you need to nominate a contact, please do that by the deadline date stated. There is no question that pension auto enrolment will cause both employer and adviser more work.

Advice and support for your Pension Auto enrolment

If you are a micro business that is not an exempt employer, you will want advice and support to help you through this newest set of employer regulations. The Pensions Regulator is very aware that some employers may blatantly refuse to set up a scheme, and with this in mind, have made it a criminal offense to comply with various fines to be imposed for not communicating with them at the right time.

Your accountant or business adviser is there to help. Please contact us if you need help. You can get more advice from The Pension Regulator for more information at http://www.pensionsadvisoryservice.org.uk/

More on auto enrolment – postponement and selecting a scheme in my follow-up article.

 Posted by at 8:05 pm
Aug 232015
 
  1. DIY recordkeepingUse a software/system that you are happy with. The first step I would suggest is getting a system that suits you and your business. Accountants tend to favour systems that allow more checks and may be a bit more rigorous, so you may want to ask your fellow business colleague what they are using. The type of business you operate may mean a particular system may suit you better. As most software come free with an initial free period you can try them before buying or using. The key to processing your data is that you must be able to see your sales, expenditure, profit, monies owed to you and monies you owe.    Cloud computing has opened up the door to a proliferation of free software that enables all businesses now to have the option to undertake their own bookkeeping. This is good news for even the smallest businesses who can now take control of their own record keeping. No longer do you need to hold the figures in your head or wait for your accountant to put them together at the year end.

2. Make sure you understand your business processes 

This is linked to choosing the software that suits you in (1) above, but goes a bit further in that your recordkeeping needs to mirror your business processes for e.g. if you have stock you need to have a system that enables you to record your stock and work out what is left at a period end. If your business is property sales or letting, you need to have a system that shows the processes for your tenants’ deposits and repayments for example. This is where talking to your accountant may help or to your regulated body if you have one, who may be able to suggest a suitable software.

3. Set aside time to do it

Finding the software to use can be like getting a new toy – the novelty can wear off very quickly especially when the reality sets in that you do need to “do it” to get the information to manage your business. Planning your business day may be a useful way to approach this, so that you factor in time to do your recordkeeping. This is of course not written in stone so that you cannot vary from it (without suffering unnecessary guilt!), but because it is written in your daily routine you will find time to fit it in as you are able.

4. Get some training to help you 

 

Some people may not need training to get going, some do. If you find yourself asking questions each time you try to do work on your chosen system then you may need some training to get you going. Your system may come with some training via video or other means, check this out to take advantage of any free training that is available. Training do not need to be as daunting and expensive as you may think. Many local business enterprise support agencies offer training at very good rates.

5. Keep up with the processing 

 

Bookkeeping is ongoing so you need to ensure you can keep up with your processing once you get going. If your business is VAT registered you are obliged to report VAT every quarter which is one way of ensuring you keep up with the recordkeeping. Knowing what your trading information is at any point should hopefully be enough motivation to keep on top of the processing.

6. Get help if necessary 

 

If you find in spite of your best efforts keeping up with the processing is getting the better of you, particularly if business is betting busier, getting help may be your next step. It is always useful to get a family member to help as you can pay them with the wages being part of the household income as well as being a tax deductible expense. The UK Government offers help with apprenticeships and many local colleges are looking to get students on work placements who could be a source of help.

7. Ask what other people are doing

 

Finally, check out how DIY bookkeeping is working for your business colleagues. You never know, they may have some good business practice you can adopt or you may have some you can share – it all goes round in the big circle of keeping business going.

 Posted by at 6:23 pm