Property Taxation 2017-2020: This Is What You Need To Know
2017 Income Tax – Restriction of finance costs for individual property landlords
Did you know that in his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019), if you are a non-resident landlord, you would have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses. Please note that different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year. In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies. Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
And did you also know that, as part of his 2018 Budget, the then Chancellor Philip Hammond announced his intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020, by cutting the last period of ownership from 18 months to just 9 months. Please note that, as with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care. As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant. Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property, on a casual basis without losing the benefit of PRR. But HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence. So what are the current lettings relief rules? Well, where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain, the rules are as follows:- This relief can cover gains of up to £40,000 per owner
- It is only available if the property has been the owner’s main home for a period
- It is also capped at the amount of PPR relief, due for the period of actual occupation by the owner
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
7 Top Tips For Tax Return Filing
Self-Assessment Tax Return Tips
You must file your 2018/19 self-assessment tax return online by midnight on 31 January 2020 if you want to avoid a late filing penalty. so, what can you do to help ensure this deadline is met?
Help us to help you
Tax return season is a very busy time for us accountants and tax advisers. With the best will in the world, there is a limit to the number of tax returns that can be filed on 31 January. To ensure your tax return is filed on time, it is advisable to help us help you, as follows:
1. Check what date your accountant needs tax information from you in order to meet the filing deadline, and make sure that you provide the information by that date.
2. Collect together all the relevant paperwork and make sure nothing is missing. This will include your P60 and P11D, dividend vouchers, bank statements, details of trading income and expenses, details of rental income and expenses, details of sales of capital assets and associated expenses, and details of pension contribution and charitable donations.
3. Make sure your paperwork is organised and easy to follow, whether supplied digitally or in hard copy format.
4. Keep copies of the information supplied to your accountant.
5. Advise your accountant of any changes in your personal circumstances – such as change of address, whether you have got married or divorced etc.
6. Deal with any queries promptly.
7. Pay any tax due on time.
What are the penalties for late returns?
Deadlines Apply
You will be charged a late filing penalty if your self-assessment tax return is filed late. The normal deadline for filing the 2018/19 tax return online is midnight on 31 January 2020. A later deadline applies if your notice to file a return was issued after 31 October 2019 – this is three months from the date of the notice.
Underpayments
If you wanted an underpayment (available for underpayments of up to £3,000) to be collected through PAYE, via an adjustment to your tax code, you would have had to file returns by 30 December 2019. And you would have had to file paper returns by 31 October 2019 (or three months from the date of the notice to file, where this was issued after 31 July 2019) to avoid a penalty – however, if you missed this deadline, you can avoid a penalty by filing online, by 31 January 2020.
£100 Penalty And More
You should know that returns filed late, attract a late filing penalty of £100. You will be charged even if there is no tax to pay or the tax is paid on time. You will also be charged further penalties, if your return has not been filed three months after the due date – from that point daily penalties of £10 per day start, to accrue for a maximum of 90 days (£900). At the six month and 12-month point, you will then be charged additional penalties set at the higher of 5% of the tax due and £300. You will also be charged penalties if tax is paid late, in addition to any interest that may accrue. The trigger dates you should watch out for are 30 days late, six months late and 12 months late. At each date, the penalty is 5% of the tax outstanding at the trigger date.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
What Are The Key Business Trends for 2020?
So what are the key business trends for 2020, and how could these affect your business in 2020?
1. Key Business Trend One: Workplace Well-being
The environment, well-being, mental health and technology look set to be some of the big key business trends in 2020. As we move into 2020, businesses, including yours, will have to adapt in a world that places greater emphasis on sustainable business practices. People will want to work for firms that take care of their employees, in terms of their physical and mental health.
2. Key Business Trend Two: The Use of Technology & Flexible Working
Technology will continue to be the key enabler to allow us to work flexibly, remotely and more effectively. It looks like 2020 is set to be a busy year for businesses in the UK and internationally.
3. Key Business Trend Three: Environmentally Aware
Another key business trend is that customers are becoming more environmentally aware. Companies like Beyond Meat, the maker of plant-based, protein-rich foods or Everlane, which creates clothes from recycled fibres and plastics, are gaining traction. People are trying to reduce their carbon footprint and are making buying decisions on the basis of the environmental credentials of businesses. As a result, businesses are responding by focusing on their environmental and sustainability policies. Many firms are adapting their CSR activities to include environmental projects, in order to help drive the green agenda in local communities. As we move into 2020, this trend is likely to accelerate and affect your business.
4. Key Business Trend Four: Artificial Intelligence (AI)
On the technology side of things, machine learning and artificial intelligence (AI) are continuing to advance. The AI industry is growing and your business could have access to more powerful tools, in order to create new customer experiences. For example, music-streaming service Spotify uses AI to make the listening experience more personal by creating customised play-lists for each user.
5. Key Business Trend Summary: Embrace New Trends To Attract The Best People
Younger workers are putting greater emphasis on physical wellbeing and their mental health. You, as an employer, will need to adapt in order to attract the next generation of talented employees. Flexible working and wellness programmes are high on the list of priorities for Millennials and Generation Z employees. If your business really embraces these new trends, you will surely attract the best people.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Season’s Greetings
We, the Lotuswise Team, wish all our clients & friends a very Merry Christmas and a Happy New Year!
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Making Tax Digital – How To Set Up Digital Links
MTD – announces more time for digital links…what does this mean for you?
You may have heard that on, 17 October, HMRC made a much-welcomed announcement that some businesses will qualify for an extension to the MTD for VAT (MTDfV) existing twelve months ‘soft-landing’ period. This is to allow businesses to set up digital links. Does your business qualify for an extension?
The basics
In order to explain the significance of this extension, it’s best to reprise some of the basics of what’s required to achieve compliance with MTDfv. Specifically, if you’re a VAT-registered entity with annual VATable turnover greater than £85k. You then need to keep digital VAT records and file MTD-compliant VAT returns.
HMRC’s view
For your information, section 4 of HMRC VAT notice 700/22 ‘Making Tax Digital for VAT’ covers the requirements for your digital record keeping, a fundamental of ensuring compliance with MTD:
- If you are a VAT registered business with annual VAT-able turnover in excess of £85K, you are required to comply with MTDfV rules.
- To achieve compliance, you must keep and preserve certain records and accounts digitally within functional compatible software.
- Functional compatible software can be a software program, or set of software programs, products or applications, that must be able to:
1. record and preserve digital records (see paragraph 4.3)
2. provide HMRC with information and returns from data held in those digital records by using the API platform
3. receive information from HMRC using the API platform
With only limited exceptions, once your VAT data has been digitally recorded into your business’ chosen accounting software any subsequent transfer, recapture or modification of it must be carried out using digital links. While everything required to achieve compliance could be done from within third-party software, it might also mean resorting to transferring your data between disparate pieces of software, in order to achieve compliance. With each piece of software needing to be ‘digitally linked’, to create a digital journey ending with the submission of your MTD-compliant VAT return.
Digital links
So exactly, what are digital links? Well, section 4.2 .1 of 700/22 describes a ‘digital link’ as, “…. a transfer or exchange of data [that] is made, or can be made, electronically between software programs, products or applications”. So, in effect, digital links include:
- Linked cells in spreadsheets
- Emailing a spreadsheet containing digital records, so the information can be imported into another software product
- Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, or flash drive), and physically giving this to someone else, who then imports that data into their software
- XML, CSV import and export, and downloads and uploads of files
- Automated data transfers
Why?
In the context of MTDfV, a soft-landing period is an amnesty period during which, provided you are a VAT registered entity required to comply with MTDfV regulations, and you have tried your best to satisfy the digital links rules. And that for reasons such as your software providers still working on delivering the required functionality, you have found it impractical to comply, so then no penalty for non-compliance will be issued. Prior to the launch of MTDfV, HMRC announced there would be a one-year soft-landing period for all businesses who, after trying, were initially unable meet the legal requirement for digital links. The period-of-soft-landing was, and remains to be, an essential element of ensuring a smooth roll out of MTDfV. Why…simply…without the soft-landing many businesses, without fully functionally compatible software at the launch of MTDfV, would have been left facing fines for failing to have digital links in place, even though, they and or their software providers, were doing their best to ensure that everything required to achieve compliance would be ready as soon as possible. Which, HMRC realised was not a good position to leave those willing to be compliant in.
The initial soft-landing period
If you are affected, the initial soft-landing period commenced from the first day, of the first return period, after 31 March 2019 for most mandated businesses, or after 30 September for a small number of deferred businesses. Those with the most complex of VAT affairs. As announced on 17 October, businesses with complex or legacy IT systems, who are struggling to have digital links in place within the existing one-year soft-landing window, are now able to apply for additional time to put the required digital subject to meeting certain qualifying criteria. Where your business qualifies, the additional time will be granted as a specific direction from HMRC. It’s important to note that there is no blanket extension to the soft-landing period, and it appears that HMRC will take a fairly strict line on who does and doesn’t qualify.
Why the extension?
Many businesses use bespoke software, specifically tailored to their market sector, to manage bookings, keep records, stocks, etc. Where this is the case, it is not uncommon for there to be a need to manually post totals from one part of a system to another on a weekly, monthly or other basis. While such transfers will not be acceptable once the soft-landing expires, replacing them with a digital link(s) is proving, for some, to be difficult. In much the same way, many businesses with internally developed systems are finding they may need additional time to get their, often very different, software packages to talk to each other. This is particularly proving to be the case for VAT registered entities in VAT groups. In recent months, AAT and its fellow professional bodies have highlighted to HMRC the difficulties some businesses are facing when trying to ensure they have digital links next year. This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT systems.
How generous is HMRC likely to be?
While your business can apply for an extension, you will only get one if HMRC accept that one is needed. Section 4.2 .1.3 sets out various criteria which you need to meet for digital link deadline extensions. Key amongst these is that it must be “unachievable and not reasonable” to have digital links in place in the normal one-year soft-landing period. HMRC are very clear that an extension will only be granted in “exceptional circumstances”. The department does not accept that the potential cost of achieving compliance with the digital links requirements, is sufficient grounds for you to apply for an extension. Furthermore, it expects businesses to make every effort to comply with ‘digital links requirements’. HMRC examples of what might be considered “unachievable and not reasonable”, include:
- Part of an IT system is incapable of importing and exporting data to or from another part, and it isn’t possible to update or replace it in time; and
- A business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the original soft-landing period.
Even where an extension application is granted by HMRC, it will not be a permanent relaxation of the requirement for robust end-to-end digital links.
- Businesses still have to consider how they will put digital links in place, and will need to set out a clear explanation and timetable for when and how this will be implemented in their application to HMRC.
- The length of any extension will be decided on a case by case basis, though HMRC has indicated that they do not expect that this will ordinarily be what businesses should do.
If you think your business may benefit from an extension, you should first look at the detail in the VAT Notice, whether it meets HMRC’s criteria. If you believe it does, then you can make a formal application to HMRC. The VAT Notice sets out the information which this must contain, including the “unachievable and not reasonable” explanation, to have digital links in place by the end of the normal soft-landing period, a map of current VAT systems, a timetable plan to put digital links in place, and details of controls for manual transfers of data in the meantime. You have to submit your application before the current soft-landing-on-digital-links expires. Given the amount of information required, you may want to make a start on your application sooner rather than later.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of making tax digital and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
How To Reduce Debtor Days And Improve Cash Flow
Reduce your debtor days and improve your cash flow!
Cash flow is king in any business. Yet cash flow is one of the areas your business might be struggling to manage.
Your customers might be reluctant to part with their money, even if it’s to pay for your goods or services. As such, it can take a while for them to pay their invoices. While longer debtor days might not be a big issue for huge international corporations, for the rest of us, it can be a very real source of stress. You need your customers to pay you as quickly as possible so you can continue to run your business, so it’s easy to find yourself working extra hours, chasing up late-paying clients. Here are a few tips to help you reduce your debtor’s days.
When it comes to cash flow: be clear and concise
When creating an invoice, think about your messaging. Is the due date easy to see on the page? Does your invoice state exactly how much payment is required? And have you clearly outlined the various payment options you accept (such as bank transfers, cash, cheque, etc.)? You should clearly set out options such as “pay now”, “pay by instalments” or “pay on the due date”.
Offer incentives to improve your cash flow
Sometimes offering a small discount can motivate your clients to pay you on time. Offering say, 5% off the total bill for clients who pay within 2 weeks of the invoice date, can help your business to get cash in quicker. If you set this type of incentive out at the beginning of your client relationship, it will go down well with clients, as they will see the early payment discount as a “value add”.
More cash flow for you: charge fees for late payment
You can incentivise customers to pay you on time by charging a fee for late payments. If you communicate the terms and conditions around late fees clearly, clients will not be surprised if they are charged for late payment. If you are going to charge clients for late payment, it is usually effective to give some sort of warning. It may be helpful to send clients an email saying that “payment is due in 10 days time, and if it isn’t received, a late payment fee will be applied.” This gives your client an opportunity to respond.
Stay on top of your cash flow and embrace technology
There are a vast array of systems available to help your business track invoices, monitor payments and manage clients who have missed payment deadlines. With an automated accounts receivable system, you can keep track of the status of each invoice, who has paid and what is outstanding. You can set up automatic reminders at crucial moments in the payment cycle, and significantly reduce your administration time.
By implementing the above strategies, you can reduce debtor days in your business and ensure that you are getting cash in as quickly as possible.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Christmas: How To Organise Staff Parties & Gifts Tax free
Christmas Parties and Presents
Did you know that the taxman is not entirely lacking in Christmas spirit? If you are an employer, the tax system features a number of exemptions which enable you to put on a party for staff or to give your employees a seasonal gift, without triggering an unwanted tax liability. However, you should also know that the taxman’s generosity is limited, and the message here is to keep it modest.
Staff Christmas parties
When considering Christmas staff parties, you should take into account that there is no specific exemption, but there is one for annual parties and functions and it is this exemption which provides the opportunity for your staff – and their guests – to enjoy a Christmas party, without being hit with tax charge once the decorations have been packed away. In addition, as with all exemptions, availability is contingent on the associated conditions being met.
Function must be an annual function
And when it comes to tax exemption, you need to be aware that not all functions are equal. The tax exemption only applies to your annual parties and functions. Consequently, if you hold a staff Christmas party every year, you could take advantage of the exemption to keep it tax-free. However, if your Christmas party is not a regular occurrence and you decide to hold a party for staff this year as a one-off, for example to celebrate a successful year, the exemption will not apply and your employees will be taxed on the resulting benefit in kind.
Exempt amount capped at £150 per head
On top of that, the exemption only applies to your annual function if the cost per head is £150 or less including VAT. This is simply the total cost of your function divided by the total number of people attending, including both employees and any guests. If you also provide accommodation or transport, you also need to know that these are taken into account in working out the total cost of your function. VAT is also included, even if this is subsequently recovered where you are VAT-registered. If you only hold one annual function in the tax year, it will be tax and National Insurance free, as long as the cost per head figure is not more than £150.
Exceeding the £150 per head limit
To add to that, the £150 per head figure is an exemption not an allowance, and if the cost of your function is more than £150 per head, the total amount is taxable, not just the excess over £150. This means that if the cost per head is £155 per head, an employee attending alone would be treated as receiving a taxable benefit, with a taxable value of £155. Where an employee attends with a partner, the employee is taxed on their partner’s attendance too – in this case the taxable benefit would be £310. You will also face a Class 1A National Insurance charge where the provision of your party is taxable on employees, as a benefit in kind. So bear in mind that going slightly over the £150 cost per head limit can be expensive – and that there is no tax or employer-only Class 1A National Insurance for you to pay for an annual party where the cost per head is £149; however, the story is very different if it creeps up to £151 per head. The moral here is for you to keep a close eye on your costs.
More than one annual function
Where you hold more than one annual function in the year, the exemption can be allocated in such a way as to minimise the overall tax bill. Your annual functions will all be tax-free, as long as the total cost of all your functions is not more than £150 per head. For example, if you were to hold an annual Christmas party costing £50 per head and a summer barbecue costing £40 per head, both will remain tax free as the total cost per head figure of £90 is less than the permitted £150. If the total cost of all your functions is more than £150, the exemption can cover whole functions in such a way as to give the best result. For example, if you hold three annual functions costing respectively, £70 per head, £60 per head and £40 per head, at first sight the exemption is best applied to the £70 and £60 functions (a total cost of £130 per head). The remaining £20 is lost, as it cannot be set against the £40 per head function – only whole functions can qualify for the exemption. The best result may be different if guests are invited to some of your functions, but not to others. In the last example, if your employees bring a guest to the £40 function, the exemption is best utilised against the £70 and £40 per head events. Leaving the £40 function in charge will mean that your employee suffers a taxable benefit of £80 (£40 for the employee and £40 for their guest); leaving the £60 function in charge reduces the total taxable benefit to £60. There is no substitute for you doing the sums.
Consider a PSA
Another thing, if a taxable benefit arises in respect of your staff Christmas party, either because the function is not an annual function or because the cost per head figure exceeds the £150 exempt limit, you could consider using a PAYE Settlement Agreement (PSA) to settle the tax liability on behalf of your employees, to preserve your goodwill gesture. A PSA is an agreement with the tax inspector under which you pay the tax and associated National Insurance on behalf of your employees. If you want to know more about this, information on using a PSA can be found online.
Deduct the cost in computing profits
The general prohibition on tax deductions for entertainment expenses does not apply to staff entertaining. Consequently, the costs of holding your staff Christmas party can be deducted in computing the employer’s taxable business profits.
Seasonal gifts
At Christmas, you may wish to show your appreciation by making gifts to your staff, customers and suppliers. The rules on gifts can be quite complicated and it is important you understand when a tax charge may arise on the recipient, and what you can deduct when computing its profits.
Staff gifts
It is possible to give your staff small seasonal gifts, without triggering an associated tax charge. Your typical gifts could include a bottle of wine, a small hamper, a box of chocolates and suchlike. The relevant exemption here is the one for trivial benefits, which enables your employees to enjoy small non-cash benefits, costing no more than £50. Unless your employee is a director of a close company, there is no limit on the number of tax-free gifts of £50 and under, that your employee can enjoy each year; for close company directors, there is a £300 annual limit. You should be aware that there are conditions which must be met for the exemption to apply, though. Your gifts must not be in cash or in the form of a cash voucher and it must cost you £50 or less to provide. Further, your gift cannot be reward for services, and there must be no contractual obligation to provide it. Keeping seasonal gifts within the trivial benefits exemption will prevent a tax charge from arising. Detailed guidance on the trivial benefits exemption can be found in HMRC’s Employment Income Manual. Be aware that cash gifts and cash vouchers are liable to PAYE and employer and employee National Insurance. If a tax liability does arise, for example because the cost is more than £50, it will be taxed on your employee, as a benefit in kind, and will need to be reported to HMRC on the employee’s P11D. An employer-only Class 1A National Insurance liability will also arise. Again, you could consider using a PSA, to meet the liability on behalf of your employees. As with staff parties, you can deduct the cost of staff gifts, when computing their taxable profits.
Gifts to third parties
You’re probably familiar with the fact that it’s also traditional at Christmas to give a small gift to key customers and suppliers as a ‘thank you’. However, the rules here are harsh; gifts to third parties are deemed to be entertaining, in respect of which a tax deduction is denied. There is however a workaround – your gift will be tax deductible if the cost does not exceed £50 per person per tax year, and it features a conspicuous advert for the business. In addition, it cannot be food, drink or tobacco (or a voucher exchangeable for food, drink or tobacco). Consequently, to benefit from a deduction for gifts to third parties, go for a business diary or a pen featuring an advert for your business, rather than a bottle of wine.
Keeping it tax-free
To keep your Christmas parties and seasonal gifts tax-free, the trick is for you to keep it small and make use of the available exemptions. Plan ahead and make sure that the cost figures do not creep up.
Lotuswise Chartered Accountants and Business Consultants can support your business with the complexities of these tax and payment rules and help you succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Could You Claim Small Business Rate Relief?
Small business rate relief & business rates
Did you know that business rates are payable on non-domestic properties such as offices, shops and factories. And that the rates are worked out on the rateable value of the property, but there are various reliefs available including small business rate relief. You should also know that the relief is not given automatically and that, as a small business, you could be overpaying, not realising you are entitled to the relief. However, all is not lost; claims for your relief can be made retrospectively, giving rise to a repayment of overpaid business rates.
The business rates calculation
So how do you calculate business rates, we hear you ask? Well, they are worked out by applying the relevant multiplier (set in terms of pence in the pound) to the rateable value of your property. In addition, we know that the most recent valuation took place in 2015, and is used as the basis for all business rate calculations from April 2017 onwards. And you can check the rateable value of your business property online. You should note that the rateable value is based on the annual rent that could be expected to be received if the property were let on a commercial basis.
To add to that, we also know that in England, there is a standard multiplier and a small business multiplier. The standard multiplier, set at 50.4p for 2019/20, applies to business properties with a rateable value of £51,000 or more. The small business multiplier, applying to business properties with a rateable value below £51,000, is set at 49.1p for 2019/20. The multipliers for the City of London are higher – the standard multiplier is 51p and the small business multiplier is 49.7p. In Wales, there is a single multiplier of 52.6. So, for example, the annual business rates for a property with a rateable value of £20,000 outside London would be £9,820 – found by applying the small business multiplier of 49.1p to the rateable value of £20,000.
Small business rate relief
Furthermore, if your business is in England, small business rate relief is available where your business has only one property and the rateable value of that property is less than £15,000. Full relief is available where the rateable value is less than £12,000 – business with a single property which has a rateable value of less than £12,000 pay no business rates. And taper relief is available where the rateable value is between £12,001 and £15,000. The taper reduces the amount of relief from 100% for properties with a rateable value of £12,000 to 0% for properties with a rateable value of £15,000. The percentage reduction is found by applying the following formula: (£15,000 – x) / (£15,000 – £12,000) x 100%.
Small business rate relief example
Let’s say you are a small business operating from offices with a rateable value of £12,750, and your business is based in Norfolk. The business rates applicable to you, before deducting small business relief, are found by applying the small business multiplier of 49.1p to the rateable value of £12,750, giving you a figure of £6260.25. Taper relief is available. The percentage reduction is 75%. Thus, applying small business relief reduces your business rates by 75% to £1,565.06.
Claim the small business rate relief
Unless you make a claim, your business will not benefit from the relief. And your claim must be made to the relevant council, either in writing or online. Once you’ve made your claim, it will be applied to future years. What’s more, claims can be backdated, so check bills since the start of the current system in April 2017. On top of that, you may not realise this but, small business rates relief is not given automatically, and you may be due sizeable repayments. Unless you make that claim, you will continue to overpay. So take action today!
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of business rates, and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Why File Your Tax Return By 30 December?
File your tax return by 30 December
Your 2018/19 self-assessment tax return must be filed online by midnight on 31 January 2020, if you want to avoid a filing penalty. A later deadline applies where you were not given a notice to file your return until after 31 October 2019 – in this case, the deadline is three months after the date of the notice. However, it can be beneficial to file your tax return by 30 December 2019, rather than waiting until 31 January 2020.
Why file your tax return by 30 December?
Filing your 2018/19 tax return online by 30 December 2019, may mean that any underpayment can be collected, through an adjustment to your tax code. This may be preferable to having to pay it in one instalment by 31 January 2020. Instead collection of the underpayment is spread throughout the following tax year. The option to have tax collected through your tax code is available where:
- Your return is filed online by 30 December 2019, or a paper return was filed by 31 October 2019;
- The underpayment is less than £3,000; and
- You, as a taxpayer, already pay tax under PAYE, for example, because you are an employee or because you receive a company pension.
However, HMRC will not collect an underpayment via an adjustment to a tax code if you, as a taxpayer, do not have sufficient PAYE income to allow for the repayment, or if as a result of coding out the underpayment, you, as a taxpayer, would pay more than 50% of your PAYE income in tax or would pay more than twice as much tax, on your PAYE income as you would do otherwise.
No need to tell HMRC you want an underpayment coded out
Where your tax return is submitted online by 30 December deadline, and the conditions for coding out an underpayment are met, HMRC will automatically adjust your tax code for 2020/21, to collect the underpayment for 2018/19. If you have just been organised in filing your tax return, ahead of time, and do not want an underpayment coded out, you must let HMRC know, by ticking the relevant box on your tax return.
How does the adjustment work?
The underpayment is collected by grossing it up, at your marginal tax rate, and treating it as a deduction from your personal allowances, to which you are entitled. For example, if an employee has a tax underpayment of £300 for 2018/19 relating to, say, dividend income and the taxpayer pays tax at 40%, the relevant adjustment to the tax code is £750 (£750 @ 40% = £300). Assuming the taxpayer has a personal allowance of £12,500 for 2020/21, and no other adjustments to their code, their allowances will be reduced by £750 to £11,750, giving rise to a tax code for 2020/21 of 1175L. The underpayment is collected in equal instalments, over the course of the tax year. Where the employee is paid monthly, the £300 underpayment would be collected in 12 instalments of £25. This may be much less painful than paying it all in one hit.
Action point
Consider whether it would be beneficial to file your tax return by midnight on 30 December 2019, to enable a tax underpayment to be deducted from your pay.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of your tax return, and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
5 Things You Should Know About Thought Leadership
5 Things You Should Know About Thought Leadership
1. What Is Thought Leadership?
Thought leadership can be a very effective marketing tool for you, but successfully implementing your thought leadership strategy, is a lot harder that it sounds. As such, a good thought leader is someone who, based on their expertise and perspective of an industry, offers unique guidance, inspires innovation and influences others. And their views on a particular subject are taken to be authoritative.
2. How do you become a professional who applies thought leadership?
To become recognised as a thought leader by your peers, you’re going to have to write, speak, produce content such as video, be interviewed and produce original ideas about the topic you want to specialise in. You need to be passionate about your topic or you are unlikely to succeed in becoming a thought leader in that area. Focus on a niche area – if your topic is too broad or is already covered by lots of other industry experts, you risk getting lost in all the noise.
3. What should be your thought leadership angle?
Once you’ve identified your topic, consider the angle. Are you going to challenge conventional thinking? Have you got an original idea that helps you stand out? Go beyond just collecting and disseminating existing information into usable chunks for your audience. Look at your target market – what challenges do they face in their business or personal lives. Perhaps there is a gap where your firm’s product or service can help? Consider how you could go about educating your target audience in a way that adds value for them. Social media makes it easier than ever to disseminate thought leadership material. Start by producing a blog on LinkedIn. Set yourself a target to update your LinkedIn blog once a month, focussing on expressing and articulating your thoughts on your chosen topic in way that is relevant to your target audience.
4. Thought Leadership research?
Carry out research which relates to your topic, you could perhaps create your own online survey. Use that research to substantiate your point of view. Draw on your own customer data and use this to develop your thinking and report on your results. Over time, you will start to gain some recognition among your target audience. As your reputation builds, expand your range of communication channels to include articles for industry magazines, e-news updates, newsletters and posts on your company website.
5. Thought Leadership speaker!
Make yourself available to speak at industry conferences and be open to responding to enquiries from the media and trade press. The more you put yourself, your content and your views out there, the more your reputation will grow and develop. Make a point of sitting down at least once a year to create, review and update a rolling thought leadership plan. Consider what it is you’re trying to achieve and set out your objectives for your thought leadership to support your overall goals.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Property Taxation 2017-2020: This Is What You Need To Know
2017 Income Tax – Restriction of finance costs for individual property landlords
Did you know that in his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019), if you are a non-resident landlord, you would have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses. Please note that different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year. In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies. Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
And did you also know that, as part of his 2018 Budget, the then Chancellor Philip Hammond announced his intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020, by cutting the last period of ownership from 18 months to just 9 months. Please note that, as with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care. As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant. Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property, on a casual basis without losing the benefit of PRR. But HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence. So what are the current lettings relief rules? Well, where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain, the rules are as follows:- This relief can cover gains of up to £40,000 per owner
- It is only available if the property has been the owner’s main home for a period
- It is also capped at the amount of PPR relief, due for the period of actual occupation by the owner
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these tax and payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
7 Top Tips For Tax Return Filing
Self-Assessment Tax Return Tips
You must file your 2018/19 self-assessment tax return online by midnight on 31 January 2020 if you want to avoid a late filing penalty. so, what can you do to help ensure this deadline is met?
Help us to help you
Tax return season is a very busy time for us accountants and tax advisers. With the best will in the world, there is a limit to the number of tax returns that can be filed on 31 January. To ensure your tax return is filed on time, it is advisable to help us help you, as follows:
1. Check what date your accountant needs tax information from you in order to meet the filing deadline, and make sure that you provide the information by that date.
2. Collect together all the relevant paperwork and make sure nothing is missing. This will include your P60 and P11D, dividend vouchers, bank statements, details of trading income and expenses, details of rental income and expenses, details of sales of capital assets and associated expenses, and details of pension contribution and charitable donations.
3. Make sure your paperwork is organised and easy to follow, whether supplied digitally or in hard copy format.
4. Keep copies of the information supplied to your accountant.
5. Advise your accountant of any changes in your personal circumstances – such as change of address, whether you have got married or divorced etc.
6. Deal with any queries promptly.
7. Pay any tax due on time.
What are the penalties for late returns?
Deadlines Apply
You will be charged a late filing penalty if your self-assessment tax return is filed late. The normal deadline for filing the 2018/19 tax return online is midnight on 31 January 2020. A later deadline applies if your notice to file a return was issued after 31 October 2019 – this is three months from the date of the notice.
Underpayments
If you wanted an underpayment (available for underpayments of up to £3,000) to be collected through PAYE, via an adjustment to your tax code, you would have had to file returns by 30 December 2019. And you would have had to file paper returns by 31 October 2019 (or three months from the date of the notice to file, where this was issued after 31 July 2019) to avoid a penalty – however, if you missed this deadline, you can avoid a penalty by filing online, by 31 January 2020.
£100 Penalty And More
You should know that returns filed late, attract a late filing penalty of £100. You will be charged even if there is no tax to pay or the tax is paid on time. You will also be charged further penalties, if your return has not been filed three months after the due date – from that point daily penalties of £10 per day start, to accrue for a maximum of 90 days (£900). At the six month and 12-month point, you will then be charged additional penalties set at the higher of 5% of the tax due and £300. You will also be charged penalties if tax is paid late, in addition to any interest that may accrue. The trigger dates you should watch out for are 30 days late, six months late and 12 months late. At each date, the penalty is 5% of the tax outstanding at the trigger date.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of these payment rules and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
What Are The Key Business Trends for 2020?
So what are the key business trends for 2020, and how could these affect your business in 2020?
1. Key Business Trend One: Workplace Well-being
The environment, well-being, mental health and technology look set to be some of the big key business trends in 2020. As we move into 2020, businesses, including yours, will have to adapt in a world that places greater emphasis on sustainable business practices. People will want to work for firms that take care of their employees, in terms of their physical and mental health.
2. Key Business Trend Two: The Use of Technology & Flexible Working
Technology will continue to be the key enabler to allow us to work flexibly, remotely and more effectively. It looks like 2020 is set to be a busy year for businesses in the UK and internationally.
3. Key Business Trend Three: Environmentally Aware
Another key business trend is that customers are becoming more environmentally aware. Companies like Beyond Meat, the maker of plant-based, protein-rich foods or Everlane, which creates clothes from recycled fibres and plastics, are gaining traction. People are trying to reduce their carbon footprint and are making buying decisions on the basis of the environmental credentials of businesses. As a result, businesses are responding by focusing on their environmental and sustainability policies. Many firms are adapting their CSR activities to include environmental projects, in order to help drive the green agenda in local communities. As we move into 2020, this trend is likely to accelerate and affect your business.
4. Key Business Trend Four: Artificial Intelligence (AI)
On the technology side of things, machine learning and artificial intelligence (AI) are continuing to advance. The AI industry is growing and your business could have access to more powerful tools, in order to create new customer experiences. For example, music-streaming service Spotify uses AI to make the listening experience more personal by creating customised play-lists for each user.
5. Key Business Trend Summary: Embrace New Trends To Attract The Best People
Younger workers are putting greater emphasis on physical wellbeing and their mental health. You, as an employer, will need to adapt in order to attract the next generation of talented employees. Flexible working and wellness programmes are high on the list of priorities for Millennials and Generation Z employees. If your business really embraces these new trends, you will surely attract the best people.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Season’s Greetings
We, the Lotuswise Team, wish all our clients & friends a very Merry Christmas and a Happy New Year!
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Making Tax Digital – How To Set Up Digital Links
MTD – announces more time for digital links…what does this mean for you?
You may have heard that on, 17 October, HMRC made a much-welcomed announcement that some businesses will qualify for an extension to the MTD for VAT (MTDfV) existing twelve months ‘soft-landing’ period. This is to allow businesses to set up digital links. Does your business qualify for an extension?
The basics
In order to explain the significance of this extension, it’s best to reprise some of the basics of what’s required to achieve compliance with MTDfv. Specifically, if you’re a VAT-registered entity with annual VATable turnover greater than £85k. You then need to keep digital VAT records and file MTD-compliant VAT returns.
HMRC’s view
For your information, section 4 of HMRC VAT notice 700/22 ‘Making Tax Digital for VAT’ covers the requirements for your digital record keeping, a fundamental of ensuring compliance with MTD:
- If you are a VAT registered business with annual VAT-able turnover in excess of £85K, you are required to comply with MTDfV rules.
- To achieve compliance, you must keep and preserve certain records and accounts digitally within functional compatible software.
- Functional compatible software can be a software program, or set of software programs, products or applications, that must be able to:
1. record and preserve digital records (see paragraph 4.3)
2. provide HMRC with information and returns from data held in those digital records by using the API platform
3. receive information from HMRC using the API platform
With only limited exceptions, once your VAT data has been digitally recorded into your business’ chosen accounting software any subsequent transfer, recapture or modification of it must be carried out using digital links. While everything required to achieve compliance could be done from within third-party software, it might also mean resorting to transferring your data between disparate pieces of software, in order to achieve compliance. With each piece of software needing to be ‘digitally linked’, to create a digital journey ending with the submission of your MTD-compliant VAT return.
Digital links
So exactly, what are digital links? Well, section 4.2 .1 of 700/22 describes a ‘digital link’ as, “…. a transfer or exchange of data [that] is made, or can be made, electronically between software programs, products or applications”. So, in effect, digital links include:
- Linked cells in spreadsheets
- Emailing a spreadsheet containing digital records, so the information can be imported into another software product
- Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, or flash drive), and physically giving this to someone else, who then imports that data into their software
- XML, CSV import and export, and downloads and uploads of files
- Automated data transfers
Why?
In the context of MTDfV, a soft-landing period is an amnesty period during which, provided you are a VAT registered entity required to comply with MTDfV regulations, and you have tried your best to satisfy the digital links rules. And that for reasons such as your software providers still working on delivering the required functionality, you have found it impractical to comply, so then no penalty for non-compliance will be issued. Prior to the launch of MTDfV, HMRC announced there would be a one-year soft-landing period for all businesses who, after trying, were initially unable meet the legal requirement for digital links. The period-of-soft-landing was, and remains to be, an essential element of ensuring a smooth roll out of MTDfV. Why…simply…without the soft-landing many businesses, without fully functionally compatible software at the launch of MTDfV, would have been left facing fines for failing to have digital links in place, even though, they and or their software providers, were doing their best to ensure that everything required to achieve compliance would be ready as soon as possible. Which, HMRC realised was not a good position to leave those willing to be compliant in.
The initial soft-landing period
If you are affected, the initial soft-landing period commenced from the first day, of the first return period, after 31 March 2019 for most mandated businesses, or after 30 September for a small number of deferred businesses. Those with the most complex of VAT affairs. As announced on 17 October, businesses with complex or legacy IT systems, who are struggling to have digital links in place within the existing one-year soft-landing window, are now able to apply for additional time to put the required digital subject to meeting certain qualifying criteria. Where your business qualifies, the additional time will be granted as a specific direction from HMRC. It’s important to note that there is no blanket extension to the soft-landing period, and it appears that HMRC will take a fairly strict line on who does and doesn’t qualify.
Why the extension?
Many businesses use bespoke software, specifically tailored to their market sector, to manage bookings, keep records, stocks, etc. Where this is the case, it is not uncommon for there to be a need to manually post totals from one part of a system to another on a weekly, monthly or other basis. While such transfers will not be acceptable once the soft-landing expires, replacing them with a digital link(s) is proving, for some, to be difficult. In much the same way, many businesses with internally developed systems are finding they may need additional time to get their, often very different, software packages to talk to each other. This is particularly proving to be the case for VAT registered entities in VAT groups. In recent months, AAT and its fellow professional bodies have highlighted to HMRC the difficulties some businesses are facing when trying to ensure they have digital links next year. This is a particular problem in industries that use specialist software, which can often be difficult (or even impossible) to link to accounting and VAT systems.
How generous is HMRC likely to be?
While your business can apply for an extension, you will only get one if HMRC accept that one is needed. Section 4.2 .1.3 sets out various criteria which you need to meet for digital link deadline extensions. Key amongst these is that it must be “unachievable and not reasonable” to have digital links in place in the normal one-year soft-landing period. HMRC are very clear that an extension will only be granted in “exceptional circumstances”. The department does not accept that the potential cost of achieving compliance with the digital links requirements, is sufficient grounds for you to apply for an extension. Furthermore, it expects businesses to make every effort to comply with ‘digital links requirements’. HMRC examples of what might be considered “unachievable and not reasonable”, include:
- Part of an IT system is incapable of importing and exporting data to or from another part, and it isn’t possible to update or replace it in time; and
- A business is in the process of updating or replacing its IT system and the planned implementation date is not before the end of the original soft-landing period.
Even where an extension application is granted by HMRC, it will not be a permanent relaxation of the requirement for robust end-to-end digital links.
- Businesses still have to consider how they will put digital links in place, and will need to set out a clear explanation and timetable for when and how this will be implemented in their application to HMRC.
- The length of any extension will be decided on a case by case basis, though HMRC has indicated that they do not expect that this will ordinarily be what businesses should do.
If you think your business may benefit from an extension, you should first look at the detail in the VAT Notice, whether it meets HMRC’s criteria. If you believe it does, then you can make a formal application to HMRC. The VAT Notice sets out the information which this must contain, including the “unachievable and not reasonable” explanation, to have digital links in place by the end of the normal soft-landing period, a map of current VAT systems, a timetable plan to put digital links in place, and details of controls for manual transfers of data in the meantime. You have to submit your application before the current soft-landing-on-digital-links expires. Given the amount of information required, you may want to make a start on your application sooner rather than later.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of making tax digital and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
How To Reduce Debtor Days And Improve Cash Flow
Reduce your debtor days and improve your cash flow!
Cash flow is king in any business. Yet cash flow is one of the areas your business might be struggling to manage.
Your customers might be reluctant to part with their money, even if it’s to pay for your goods or services. As such, it can take a while for them to pay their invoices. While longer debtor days might not be a big issue for huge international corporations, for the rest of us, it can be a very real source of stress. You need your customers to pay you as quickly as possible so you can continue to run your business, so it’s easy to find yourself working extra hours, chasing up late-paying clients. Here are a few tips to help you reduce your debtor’s days.
When it comes to cash flow: be clear and concise
When creating an invoice, think about your messaging. Is the due date easy to see on the page? Does your invoice state exactly how much payment is required? And have you clearly outlined the various payment options you accept (such as bank transfers, cash, cheque, etc.)? You should clearly set out options such as “pay now”, “pay by instalments” or “pay on the due date”.
Offer incentives to improve your cash flow
Sometimes offering a small discount can motivate your clients to pay you on time. Offering say, 5% off the total bill for clients who pay within 2 weeks of the invoice date, can help your business to get cash in quicker. If you set this type of incentive out at the beginning of your client relationship, it will go down well with clients, as they will see the early payment discount as a “value add”.
More cash flow for you: charge fees for late payment
You can incentivise customers to pay you on time by charging a fee for late payments. If you communicate the terms and conditions around late fees clearly, clients will not be surprised if they are charged for late payment. If you are going to charge clients for late payment, it is usually effective to give some sort of warning. It may be helpful to send clients an email saying that “payment is due in 10 days time, and if it isn’t received, a late payment fee will be applied.” This gives your client an opportunity to respond.
Stay on top of your cash flow and embrace technology
There are a vast array of systems available to help your business track invoices, monitor payments and manage clients who have missed payment deadlines. With an automated accounts receivable system, you can keep track of the status of each invoice, who has paid and what is outstanding. You can set up automatic reminders at crucial moments in the payment cycle, and significantly reduce your administration time.
By implementing the above strategies, you can reduce debtor days in your business and ensure that you are getting cash in as quickly as possible.
Lotuswise Chartered Accountants and Business Consultants can help you and your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Christmas: How To Organise Staff Parties & Gifts Tax free
Christmas Parties and Presents
Did you know that the taxman is not entirely lacking in Christmas spirit? If you are an employer, the tax system features a number of exemptions which enable you to put on a party for staff or to give your employees a seasonal gift, without triggering an unwanted tax liability. However, you should also know that the taxman’s generosity is limited, and the message here is to keep it modest.
Staff Christmas parties
When considering Christmas staff parties, you should take into account that there is no specific exemption, but there is one for annual parties and functions and it is this exemption which provides the opportunity for your staff – and their guests – to enjoy a Christmas party, without being hit with tax charge once the decorations have been packed away. In addition, as with all exemptions, availability is contingent on the associated conditions being met.
Function must be an annual function
And when it comes to tax exemption, you need to be aware that not all functions are equal. The tax exemption only applies to your annual parties and functions. Consequently, if you hold a staff Christmas party every year, you could take advantage of the exemption to keep it tax-free. However, if your Christmas party is not a regular occurrence and you decide to hold a party for staff this year as a one-off, for example to celebrate a successful year, the exemption will not apply and your employees will be taxed on the resulting benefit in kind.
Exempt amount capped at £150 per head
On top of that, the exemption only applies to your annual function if the cost per head is £150 or less including VAT. This is simply the total cost of your function divided by the total number of people attending, including both employees and any guests. If you also provide accommodation or transport, you also need to know that these are taken into account in working out the total cost of your function. VAT is also included, even if this is subsequently recovered where you are VAT-registered. If you only hold one annual function in the tax year, it will be tax and National Insurance free, as long as the cost per head figure is not more than £150.
Exceeding the £150 per head limit
To add to that, the £150 per head figure is an exemption not an allowance, and if the cost of your function is more than £150 per head, the total amount is taxable, not just the excess over £150. This means that if the cost per head is £155 per head, an employee attending alone would be treated as receiving a taxable benefit, with a taxable value of £155. Where an employee attends with a partner, the employee is taxed on their partner’s attendance too – in this case the taxable benefit would be £310. You will also face a Class 1A National Insurance charge where the provision of your party is taxable on employees, as a benefit in kind. So bear in mind that going slightly over the £150 cost per head limit can be expensive – and that there is no tax or employer-only Class 1A National Insurance for you to pay for an annual party where the cost per head is £149; however, the story is very different if it creeps up to £151 per head. The moral here is for you to keep a close eye on your costs.
More than one annual function
Where you hold more than one annual function in the year, the exemption can be allocated in such a way as to minimise the overall tax bill. Your annual functions will all be tax-free, as long as the total cost of all your functions is not more than £150 per head. For example, if you were to hold an annual Christmas party costing £50 per head and a summer barbecue costing £40 per head, both will remain tax free as the total cost per head figure of £90 is less than the permitted £150. If the total cost of all your functions is more than £150, the exemption can cover whole functions in such a way as to give the best result. For example, if you hold three annual functions costing respectively, £70 per head, £60 per head and £40 per head, at first sight the exemption is best applied to the £70 and £60 functions (a total cost of £130 per head). The remaining £20 is lost, as it cannot be set against the £40 per head function – only whole functions can qualify for the exemption. The best result may be different if guests are invited to some of your functions, but not to others. In the last example, if your employees bring a guest to the £40 function, the exemption is best utilised against the £70 and £40 per head events. Leaving the £40 function in charge will mean that your employee suffers a taxable benefit of £80 (£40 for the employee and £40 for their guest); leaving the £60 function in charge reduces the total taxable benefit to £60. There is no substitute for you doing the sums.
Consider a PSA
Another thing, if a taxable benefit arises in respect of your staff Christmas party, either because the function is not an annual function or because the cost per head figure exceeds the £150 exempt limit, you could consider using a PAYE Settlement Agreement (PSA) to settle the tax liability on behalf of your employees, to preserve your goodwill gesture. A PSA is an agreement with the tax inspector under which you pay the tax and associated National Insurance on behalf of your employees. If you want to know more about this, information on using a PSA can be found online.
Deduct the cost in computing profits
The general prohibition on tax deductions for entertainment expenses does not apply to staff entertaining. Consequently, the costs of holding your staff Christmas party can be deducted in computing the employer’s taxable business profits.
Seasonal gifts
At Christmas, you may wish to show your appreciation by making gifts to your staff, customers and suppliers. The rules on gifts can be quite complicated and it is important you understand when a tax charge may arise on the recipient, and what you can deduct when computing its profits.
Staff gifts
It is possible to give your staff small seasonal gifts, without triggering an associated tax charge. Your typical gifts could include a bottle of wine, a small hamper, a box of chocolates and suchlike. The relevant exemption here is the one for trivial benefits, which enables your employees to enjoy small non-cash benefits, costing no more than £50. Unless your employee is a director of a close company, there is no limit on the number of tax-free gifts of £50 and under, that your employee can enjoy each year; for close company directors, there is a £300 annual limit. You should be aware that there are conditions which must be met for the exemption to apply, though. Your gifts must not be in cash or in the form of a cash voucher and it must cost you £50 or less to provide. Further, your gift cannot be reward for services, and there must be no contractual obligation to provide it. Keeping seasonal gifts within the trivial benefits exemption will prevent a tax charge from arising. Detailed guidance on the trivial benefits exemption can be found in HMRC’s Employment Income Manual. Be aware that cash gifts and cash vouchers are liable to PAYE and employer and employee National Insurance. If a tax liability does arise, for example because the cost is more than £50, it will be taxed on your employee, as a benefit in kind, and will need to be reported to HMRC on the employee’s P11D. An employer-only Class 1A National Insurance liability will also arise. Again, you could consider using a PSA, to meet the liability on behalf of your employees. As with staff parties, you can deduct the cost of staff gifts, when computing their taxable profits.
Gifts to third parties
You’re probably familiar with the fact that it’s also traditional at Christmas to give a small gift to key customers and suppliers as a ‘thank you’. However, the rules here are harsh; gifts to third parties are deemed to be entertaining, in respect of which a tax deduction is denied. There is however a workaround – your gift will be tax deductible if the cost does not exceed £50 per person per tax year, and it features a conspicuous advert for the business. In addition, it cannot be food, drink or tobacco (or a voucher exchangeable for food, drink or tobacco). Consequently, to benefit from a deduction for gifts to third parties, go for a business diary or a pen featuring an advert for your business, rather than a bottle of wine.
Keeping it tax-free
To keep your Christmas parties and seasonal gifts tax-free, the trick is for you to keep it small and make use of the available exemptions. Plan ahead and make sure that the cost figures do not creep up.
Lotuswise Chartered Accountants and Business Consultants can support your business with the complexities of these tax and payment rules and help you succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
Could You Claim Small Business Rate Relief?
Small business rate relief & business rates
Did you know that business rates are payable on non-domestic properties such as offices, shops and factories. And that the rates are worked out on the rateable value of the property, but there are various reliefs available including small business rate relief. You should also know that the relief is not given automatically and that, as a small business, you could be overpaying, not realising you are entitled to the relief. However, all is not lost; claims for your relief can be made retrospectively, giving rise to a repayment of overpaid business rates.
The business rates calculation
So how do you calculate business rates, we hear you ask? Well, they are worked out by applying the relevant multiplier (set in terms of pence in the pound) to the rateable value of your property. In addition, we know that the most recent valuation took place in 2015, and is used as the basis for all business rate calculations from April 2017 onwards. And you can check the rateable value of your business property online. You should note that the rateable value is based on the annual rent that could be expected to be received if the property were let on a commercial basis.
To add to that, we also know that in England, there is a standard multiplier and a small business multiplier. The standard multiplier, set at 50.4p for 2019/20, applies to business properties with a rateable value of £51,000 or more. The small business multiplier, applying to business properties with a rateable value below £51,000, is set at 49.1p for 2019/20. The multipliers for the City of London are higher – the standard multiplier is 51p and the small business multiplier is 49.7p. In Wales, there is a single multiplier of 52.6. So, for example, the annual business rates for a property with a rateable value of £20,000 outside London would be £9,820 – found by applying the small business multiplier of 49.1p to the rateable value of £20,000.
Small business rate relief
Furthermore, if your business is in England, small business rate relief is available where your business has only one property and the rateable value of that property is less than £15,000. Full relief is available where the rateable value is less than £12,000 – business with a single property which has a rateable value of less than £12,000 pay no business rates. And taper relief is available where the rateable value is between £12,001 and £15,000. The taper reduces the amount of relief from 100% for properties with a rateable value of £12,000 to 0% for properties with a rateable value of £15,000. The percentage reduction is found by applying the following formula: (£15,000 – x) / (£15,000 – £12,000) x 100%.
Small business rate relief example
Let’s say you are a small business operating from offices with a rateable value of £12,750, and your business is based in Norfolk. The business rates applicable to you, before deducting small business relief, are found by applying the small business multiplier of 49.1p to the rateable value of £12,750, giving you a figure of £6260.25. Taper relief is available. The percentage reduction is 75%. Thus, applying small business relief reduces your business rates by 75% to £1,565.06.
Claim the small business rate relief
Unless you make a claim, your business will not benefit from the relief. And your claim must be made to the relevant council, either in writing or online. Once you’ve made your claim, it will be applied to future years. What’s more, claims can be backdated, so check bills since the start of the current system in April 2017. On top of that, you may not realise this but, small business rates relief is not given automatically, and you may be due sizeable repayments. Unless you make that claim, you will continue to overpay. So take action today!
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of business rates, and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
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Why File Your Tax Return By 30 December?
File your tax return by 30 December
Your 2018/19 self-assessment tax return must be filed online by midnight on 31 January 2020, if you want to avoid a filing penalty. A later deadline applies where you were not given a notice to file your return until after 31 October 2019 – in this case, the deadline is three months after the date of the notice. However, it can be beneficial to file your tax return by 30 December 2019, rather than waiting until 31 January 2020.
Why file your tax return by 30 December?
Filing your 2018/19 tax return online by 30 December 2019, may mean that any underpayment can be collected, through an adjustment to your tax code. This may be preferable to having to pay it in one instalment by 31 January 2020. Instead collection of the underpayment is spread throughout the following tax year. The option to have tax collected through your tax code is available where:
- Your return is filed online by 30 December 2019, or a paper return was filed by 31 October 2019;
- The underpayment is less than £3,000; and
- You, as a taxpayer, already pay tax under PAYE, for example, because you are an employee or because you receive a company pension.
However, HMRC will not collect an underpayment via an adjustment to a tax code if you, as a taxpayer, do not have sufficient PAYE income to allow for the repayment, or if as a result of coding out the underpayment, you, as a taxpayer, would pay more than 50% of your PAYE income in tax or would pay more than twice as much tax, on your PAYE income as you would do otherwise.
No need to tell HMRC you want an underpayment coded out
Where your tax return is submitted online by 30 December deadline, and the conditions for coding out an underpayment are met, HMRC will automatically adjust your tax code for 2020/21, to collect the underpayment for 2018/19. If you have just been organised in filing your tax return, ahead of time, and do not want an underpayment coded out, you must let HMRC know, by ticking the relevant box on your tax return.
How does the adjustment work?
The underpayment is collected by grossing it up, at your marginal tax rate, and treating it as a deduction from your personal allowances, to which you are entitled. For example, if an employee has a tax underpayment of £300 for 2018/19 relating to, say, dividend income and the taxpayer pays tax at 40%, the relevant adjustment to the tax code is £750 (£750 @ 40% = £300). Assuming the taxpayer has a personal allowance of £12,500 for 2020/21, and no other adjustments to their code, their allowances will be reduced by £750 to £11,750, giving rise to a tax code for 2020/21 of 1175L. The underpayment is collected in equal instalments, over the course of the tax year. Where the employee is paid monthly, the £300 underpayment would be collected in 12 instalments of £25. This may be much less painful than paying it all in one hit.
Action point
Consider whether it would be beneficial to file your tax return by midnight on 30 December 2019, to enable a tax underpayment to be deducted from your pay.
Lotuswise Chartered Accountants and Business Consultants can help you make sense out of your tax return, and help your business succeed. To find out how, please contact us. To also get even more useful business and finance information and tax advice tips, check out our app on Google or Apple stores.
Watch the video here.
5 Things You Should Know About Thought Leadership
5 Things You Should Know About Thought Leadership
1. What Is Thought Leadership?
Thought leadership can be a very effective marketing tool for you, but successfully implementing your thought leadership strategy, is a lot harder that it sounds. As such, a good thought leader is someone who, based on their expertise and perspective of an industry, offers unique guidance, inspires innovation and influences others. And their views on a particular subject are taken to be authoritative.
2. How do you become a professional who applies thought leadership?
To become recognised as a thought leader by your peers, you’re going to have to write, speak, produce content such as video, be interviewed and produce original ideas about the topic you want to specialise in. You need to be passionate about your topic or you are unlikely to succeed in becoming a thought leader in that area. Focus on a niche area – if your topic is too broad or is already covered by lots of other industry experts, you risk getting lost in all the noise.
3. What should be your thought leadership angle?
Once you’ve identified your topic, consider the angle. Are you going to challenge conventional thinking? Have you got an original idea that helps you stand out? Go beyond just collecting and disseminating existing information into usable chunks for your audience. Look at your target market – what challenges do they face in their business or personal lives. Perhaps there is a gap where your firm’s product or service can help? Consider how you could go about educating your target audience in a way that adds value for them. Social media makes it easier than ever to disseminate thought leadership material. Start by producing a blog on LinkedIn. Set yourself a target to update your LinkedIn blog once a month, focussing on expressing and articulating your thoughts on your chosen topic in way that is relevant to your target audience.
4. Thought Leadership research?
Carry out research which relates to your topic, you could perhaps create your own online survey. Use that research to substantiate your point of view. Draw on your own customer data and use this to develop your thinking and report on your results. Over time, you will start to gain some recognition among your target audience. As your reputation builds, expand your range of communication channels to include articles for industry magazines, e-news updates, newsletters and posts on your company website.
5. Thought Leadership speaker!
Make yourself available to speak at industry conferences and be open to responding to enquiries from the media and trade press. The more you put yourself, your content and your views out there, the more your reputation will grow and develop. Make a point of sitting down at least once a year to create, review and update a rolling thought leadership plan. Consider what it is you’re trying to achieve and set out your objectives for your thought leadership to support your overall goals.