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Author: Alison Harrison

What is reportable on a P11D

  • Assets transferred to an employee – this could cover things like computers, televisions, furniture etc
  • Assets available to an employee at their home such as television, computer, broadband. They don’t have to be reported if solely for business use or personal use is insignificant.  Mobile phones are now exempt
  • Pecuniary payments which would include paying personal bills, rent, parking fines for their own cars, speeding fines for all cars and payment of professional subscriptions unless the professional body is on HMRC’s list of approved bodies
  • Mileage – can claim 45p for up to 10,000 miles, over that should claim 25p. Anything over that should be reported.
  • Company cars – only exemption are pooled cars which must be available to all employees and stay on the premises at night
  • Fuel – The most straightforward way of dealing with fuel is to pay for it personally and claim it back under the advisory fuel rate. Fuel cards are reportable with the employee then claiming the business part back.  Alternatively you could be given a car allowance through the payroll and be taxed at source.
  • Vans – Only reportable if there is unlimited private use and fuel. Normal commuting is acceptable
  • Beneficial loans – these include season ticket loans, credit cards and overdrawn director’s loan accounts. The overdrawn director’s loan account is reportable on a P11D in the year it occurs if it over £10k and still outstanding 9 months and one day after year end unless interest is paid at the official rate for every day outstanding.
  • Private medical insurance
  • Various expenses – Entertaining is a bit of a mine field. A birthday present would be deemed to be a “trivial expense” (ie under £50 on any one occasion), the annual Christmas party is OK up to £150 per head as long as everybody is invited but going to Costa for an appraisal is reportable.  The rules around subsistence are £5 for breakfast if you leave home before 6am, £5 for a meal if at least 5 hours on business, £10 for 2 meals for 10 hours on business and a late meal rate of £15 for finishing work after 8pm.  The cost must have actually been incurred.  These are only available for staff whose working patterns do not usually fall this way.  There is a maximum of 3 meals per 24 hours and you can no longer stay with family and friends and still claim the allowance.
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Are you giving off the right impression?

I recently saw a leaflet for something I could be have been interested in.  At the point of taking the next step I looked for an email address to email to arrange a meeting to discuss their offering.  My impression of this business suddenly did a nose dive on the professionability scale. They had a hotmail email account. Was this a part time business? Another person involved in this business had an email address sexysuzy@……. For the cost of a domain running at around £6 for 2 years, why had they not grabbed it?

I then saw that they had a website with the business domain so why were they not using the domain with an associated email address? This person had a good website so I proceeded to email.

Not getting a reply I telephoned the number on the website but it went to the home phone answerphone. Had I got the wrong number?

It took three weeks for an email reply which was full of apology. Was this person taking their business seriously? Could they cope with the work I was proposing to give them?

We met up and he gave me his business card. Oh dear! I think it was a DIY job from Staples and was completely mismatched to the website. It was poorly thought out, poorly printed and was misaligned. It gave incomplete information and contained spelling mistakes.

This business was giving out all the wrong messages before we had had the opportunity to work together.

The meeting went well but the jury is still out as to whether to use him. I have my doubts.

What is the point of all this? This person could have made a much stronger impact with so little effort.

Had he had a consistent brand image – domain, logo, standard of presentation, my impression would have been very different.

Had the telephone been answered by a human or by a professional answerphone, my impression would have been very different.

Had the initial response been earlier and the final proposal sooner after the meeting, my impression would have been very different

By the time we got to the end of the sale process, I had lost confidence in this person which is such a shame. Time will tell if I made the right decision.

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When to incorporate

This is a question we get asked frequently.  Currently sole traders have to pay personal tax on their profits, class 2 national insurance and class 4 national insurance on profits over £8424 at 9% up to £46,350 at which point Class 4 NI is 11%.  Sole traders have to pay a payment on account if their annual tax bill exceeds £1000.

 

Limited companies do not have to pay payments on account or national insurance but have to pay 100% of their corporation tax 9 months after the year end at a rate of 19% on profits.

 

Limited companies can have shareholders unlike soletraders.  When taking the combined personal tax and corporation tax liability for limited companies vs tax and national insurance for soletraders, the rough tipping point is if you have profits of £12,000 or more, it would work out to be more efficient for tax purposes to be a limited company.

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Your Dividend Questions answered

Types of shares

When a company is incorporated at Companies House, it must have at least one share.  Most commonly shares are in £1 increments although this is not compulsory.  One penny, 25p, 50p and £5 per share are not unusual.  Ordinary A shares come with full voting rights.  Not all shares carry voting rights.  Typically, A shares do and the others don’t.  ‘Alphabet shares’ can be issued and it is most usual to have A shares for the directors and B shares for example, to the spouses, partners, children or employees.  Corporate entities can also be shareholders.  It is acceptable for one individual to hold more than one class of share in a company.

 

Who can be a shareholder?

If you are over the age of 16, you can be a shareholder.  You do not need to be a director to be a shareholder, nor do you need to be a shareholder if you are a director.

 

Who is entitled to receive dividends?

If you are a shareholder of a limited company and the company declares a valid dividend, you are entitled to receive a dividend should a dividend be issued to your class of share.  Just because you are a shareholder, it does not guarantee you will receive a dividend. 

 

How often can dividends be issued?

A company can only pay a dividend if it has distributable reserves.  This means it has made a profit after tax has been deducted.  Dividends can be taken at any time but it is advised to take no more frequently than quarterly.  Quarterly, half yearly or annually are all acceptable.  Doing so more frequently may be construed as salary by HMRC and be liable to personal income tax and national insurance at the prevailing rates.  Issuing a dividend monthly for £1200 and a salary of £987 is not realistic.  Profits rise and fall from month to month.  In the example below a company makes modest profits and every quarter calculates how much can be extracted in dividends.  You will see that the profits rise and fall over the course of the year and in this example, a total of £3807 can be taken in dividends over the course of the year.

 

 

Jun-

17

Jul-

17

Aug-17

Sep-17

Oct-

17

Nov-17

Dec-17

Jan-

18

Feb-18

Mar-18

Apr-

18

May-18

Annual figs

SALES

£3,000

£3,250

£1,200

£1,750

£2,400

£2,500

£1,200

£1,750

£4,000

£2,700

£2,550

£2,700

£29,000

COST OF SALES

£50

£50

£50

£50

£50

£50

£50

£50

£50

£50

£50

£50

£600

GROSS PROFIT

£2,950

£3,200

£1,150

£1,700

£2,350

£2,450

£1,150

£1,700

£3,950

£2,650

£2,500

£2,650

£28,400

EXPENSES

£2,000

£2,500

£1,200

£2,000

£2,000

£2,000

£2,000

£2,000

£2,000

£2,000

£2,000

£2,000

£23,700

NET PROFIT

£950

£700

£50

£300

£350

£450

£850

£300

£1,950

£650

£500

£650

£4,700

CT @ 19%

£181

£133

£10

£57

£67

£86

£162

£57

£371

£124

£95

£124

£893

PROFIT AFTER TAX

£770

£567

£41

£243

£284

£365

£689

£243

£1,580

£527

£405

£527

£3,807

AMOUNT AVAILABLE AS DIVIDEND

   

£1,296

   

£405

   

£648

   

£1,458

£3,807

 

Put simply, dividends are profit (sales minus expenses) after tax provision (19%) calculated on a quarterly basis.  It is not necessary to issue a dividend if you don’t want to but if you do, the guidance in this notice should be used.

What is the process for declaring a dividend?

The bookkeeper/business owner prepares the management accounts which shows CT provision and calculates the dividends available for distribution.  A meeting is held and it is agreed what dividends will be issued.  Take the example above.  In Q1 a profit of £1296 was available.  Let us say there are 3 classes of share.

John holds 1 A share and 1 C share

Janet holds 1 B share

Susan holds 1 D share

 

At the meeting, it is agreed to issue 100% of the profits equally between the 4 classes of share

 

25% of £1296 is £324 per share category.

 

In this example, John gets £648 and Janet and Susan each get £324.  Minutes and dividend vouchers need to be issued to John, Janet and Susan each time a dividend is issued.

 

Let us suppose in Q2, the dividend is only issued to the B share holder.  100% of the dividend (£405) goes to Janet.

 

John could use any combination he wants to distribute the dividends.

 

 

What is the tax implication on dividends?

For the year ending 5/4/18, each shareholder is entitled to receive £5000 tax free in dividends.  For the year ending 5/4/19, each shareholder is entitled to receive £2000 tax free.  Each shareholder is required to submit a personal tax return declaring their dividend income.  Dividends over the initial tax free allowance are taxed at 7.5% up to £34,500, the dividends are taxed at 32.5% with no national insurance contributions currently required.

 

What would you advise?

Doing your bookkeeping on a regular basis and producing and acting upon management accounts is crucial.  With MTD (Making Tax Digital) coming in in April 2019, it will be necessary for companies to submit their accounts on a quarterly basis to HMRC.  By doing your bookkeeping regularly, you will ease the pain of having to do this.   If you need more help or advice concerning dividends or bookkeeping, please contact us for an exploratory meeting.

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Payroll service

We can run your payroll for you and save you the worry of meeting HMRC’s strict compliance rules and missing important deadlines. When we run your payroll, whether it is weekly, monthly or 4 weekly we will email you the following documents;

  • Payslips either to you or direct to your employees
  • Payroll journal showing all deductions and additions,
  • Information regarding PAYE payable for that period and details of where to pay it
  • Any pension payments for that period

Our fees for payroll from April 2019 are as follows;

Employees and new scheme

  • To set up a payroll scheme £50 + VAT
  • To run a new payroll scheme for up to 2 employees £10 + VAT a month
  • To run a payroll scheme for up to 4 employees £20 + VAT a month
  • To run a payroll scheme for up to 4 employees with pension administration £40 + VAT a month
  • For payroll schemes with over 4 employees – details on request
  • For a new employee £50 + VAT
  • For a leaver £50 + VAT
  • For a mid-year start £50 + VAT
  • To close a scheme £50 + VAT
  • To opt a company out of auto enrolment £50 + VAT
  • P11D £75 + VAT
  • Year end £50 + VAT

 

Auto-enrolment for setting up new scheme

  • For 1 or 2 directors £100 + VAT
  • Between 3 and 10 people £250 + VAT
  • 10 or more people £500 + VAT
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Have you ever wondered why the UK tax year starts on 6th April?

In 1582 Pope Gregory xiii grew tired of the inaccuracies in the existing ‘Julian’ calendar and ordered the calendar to be changed. The Julian calendar named after Julius Caesar had been in place since 45 BC.

Caesar’s calendar differed from the solar calendar by 11½ minutes.

This was not a big problem at the start, however, after 500 years this small inaccuracy had started to build up to 10 days off the solar calendar.  With this in mind, Pope Gregory introduced the Gregorian calendar.

The Gregorian calendar reduced the length of the calendar year from 365.25 days to 365.2425, a reduction of 10 minutes 48 seconds per year!

This and a few other tweaks ensured Pope Gregory’s calendar was a much more accurate time keeper. The Gregorian Calendar was then introduced in Italy, Spain, Portugal and what was then the Polish-Lithuanian commonwealth.

The Gregorian Calendar was initially quite a slow burner in the British Empire, it wasn’t introduced until 1752.  By then the British calendar was 11 days off the rest of Europe, with this due to increase as time passed, the British knew it was time for a change.

On the old British Calendar the tax year began on March 25 (the old New Year’s Day).  In order to ensure against losing revenue it was decided by the British Treasury that the tax year, which started on March 25 1752, would be of the usual length (365 days) and therefore it would end on April 4, the following tax year beginning on April 5.

Time passed smoothly and most importantly accurately until 1800.  Unfortunately 1800 was not a leap year in the new Gregorian calendar but would have been in the old Julian system. Thus the treasury moved the start of the UK tax year from the April 5 to the April 6 and it has remained there ever since!

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Is your company dormant?

Dormant Companies are defined in 2 different ways by Companies House and HMRC:

A Dormant company at Companies House is if any transaction goes through the business, then you are not dormant.  There are exceptions to this such as paying the fee for the Confirmation Statement, changes to shareholding etc. meaning if you have bank charges going through when you haven’t made any sales, then your company is not dormant.

 

HMRC state that if you are not trading then you are dormant meaning if you have don’t have any trading income or expenses you are classed as dormant with them.

 

If you have any further questions about dormant companies then please let us know.

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Childcare Vouchers and Tax- Free Childcare

Childcare voucher schemes allow an employee to receive childcare vouchers in lieu of up to £55 per week of their wages and no tax or national insurance will be paid on this.  However, this scheme was closed to new applicants with effect from 4th October 2018 (although the scheme continues to run for successful applicants prior to that date, provided certain conditions are met).

The government has introduced a new childcare scheme, called Tax-Free Childcare.   This could provide up to £500 every 3 months, up to £2000 per year, to help with childcare costs for each child.  The funds must be used for approved childcare.  Therefore, the childcare provider must be signed up to the scheme.

To qualify for Tax-Free Childcare, the claimant and partner must be in work for 16 hours a week. Single claimants may also apply. It is possible to claim if on sick leave, annual leave or parental leave (although it is not possible to claim for the child for whom the parental leave is being taken).   If the claimant is not working but the partner is, then it may still be possible to qualify if in receipt of certain benefits or allowances.

Child(ren) are eligible up to 1st September following their 11th birthday.  Adopted children are also eligible, but foster children are not.  If a child is disabled, then it may be possible to qualify for Tax-Free Childcare for longer.

It is possible to receive Tax-Fee Childcare at the same time as receiving 30 hours free childcare if eligible for both.  However, it is not possible to receive Tax- Free Childcare at the same time as receiving Working Tax Credit, Child Tax Credit, Universal Credit or childcare vouchers (if already in receipt of childcare vouchers prior to 4th October 2018).

The HMRC website has a “childcare calculator” link, designed to help work out whether Tax – Free Childcare is the best option, as opposed to other benefits.  It is also possible to apply online for Tax – Free Childcare, again through the HMRC website.

Please contact Tracy if you would like any further information on this.

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