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Blog / Newsletter

Tax Efficient Extraction of Profit from Companies for 2018/19

Published: 11/07/2018 By David Payne

The 2018/19 tax year saw changes to the personal allowance and dividend allowance, meaning that many directors of family companies will again be considering the most tax efficient method of paying themselves.

For many years accountants and tax advisors have suggested that director/shareholders should extract profit by paying themselves a low salary with the remainder of their income being extracted in the form of dividends.

Although dividends are not deductible in arriving at the company’s taxable profits, they do not normally attract National Insurance Contributions (NICs). The starting point of NICs rose to £162 a week from 6 April 2018. This is now significantly lower than the £11,850 personal income tax allowance. A salary just below £162 a week, £8,424 a year would mean no NIC would be due but would be sufficient to count as a qualifying year for State Pension purposes (if above £6,032 lower earnings limit).

Remember that employers other than those where the director is the only employee are entitled to a £3,000 employment allowance that can be set against employer’s NICs. If this has not been utilised against NICs on staff wages then consider increasing the directors’ salaries up to £11,850, as the additional salary would save corporation tax at 19% on the £3,426 extra salary which equals £651, whereas the employees NIC would be £411.

As far as the level of dividends is concerned, the rate of tax changes from 7.5% to 32.5% at £46,350 so ideally the dividends should not exceed £34,500 if a salary of £11,850 is paid. The first £2,000 would be taxed at 0% with £32,500 being taxed at 7.5%. Don’t forget that this tax will then be due on 31 January 2020, or under the “payments on account” regime.

Contact us to discuss the optimum way in which you can extract profits from your family company tax efficiently.
. . .

Spotlight on Inheritance Tax

Published: 10/07/2018 By Robert Coyle

Inheritance tax (IHT) is the tax payable on a deceased individual’s estate: in 2018/19, IHT is payable where a person’s wealth is in excess of £325,000 - otherwise known as the ‘nil-rate band’.
IHT is currently charged at 40% on the proportion of the individual’s estate that exceeds the nil-rate band. Both the value of chargeable assets held at death and the value of chargeable lifetime gifts made within seven years of death are included within the estate.

The Residence Nil-Rate Band (RNRB)
On 6 April 2017, the RNRB came into effect, permitting some individuals to escape the IHT net.
The RNRB applies where a residence is passed on death to a direct descendant, such as a child or a grandchild. For 2018/19, the RNRB is set at £125,000 and is set to rise annually thereafter, reaching £175,000 in 2020/21.
The RNRB is in addition to an individual’s nil-rate band, and can only be used in regard to one residential property which has been, at some time, a residence of the deceased. The RNRB is ta  pered at a withdrawal rate of £1 for every £2 for estates with a net value of more than £2 million.



Making the most of IHT reliefs
It’s well worth planning and done carefully there are some great opportunities to better manage your liability to IHT. Examples include:
· Transfers between spouses – are IHT exempt - and can be used in conjunction with other allowances – such as exempted gifts (see below).
· Smaller gifts can fall immediately outside of your estate. Larger gifts can be exempt if survived for seven years. There is taper relief on gifts made between 3 and 7 years before death.
· Some assets can fall outside the scope of IHT – such as AIM shares or agricultural land.
· Trusts are a potentially excellent planning tool – but are complex and need careful use.

A Pitfall
Avoid “gifts with reservation” – for a gift to work it must truly be a gift (although there are ways to carefully structure these).

Live in the South East?
If yes and you own your own home— your estate could easily be caught by IHT. Early advice is essential to best manage this tax.
. . .

So you want to start a business but what type?

Published: 09/07/2018 By Robert Coyle

So you want to start your own business – what type should it be?

You have a choice you can set up as a sole trader or you can use a Limited Liability Company to conduct your trade – which is right for you?

Well there is no right or wrong answer – you need to consider the facts & either could be right for you.

What is a sole trader & what are some advantages?
A sole trader is someone who works for themselves – there is no difference between calling yourself a sole trader or self employed. Either way you carry on a trade, supply services,  have customers etc...

Being a sole trader is the simplest way of starting a business, but even here there are things you must do such as register with the tax man & pay self employed national insurance ( at least Class II NIC possibly more).

In any event you need to…….
· Register as self-employed with HMRC
· Obtain any permits and planning permission that you may need from your local
· If you are going to have premises (say a restaurant or shop) find out from your local authority if you need to pay business rates
· Have public liability insurance
· Sort your financial admin – do you need to register for VAT, how will you keep records & get paid, what will you do for banking etc.
· But being a sole trader can be the simplest & cheapest way for many businesses to operate & is often appropriate.

So should I use a Limited Company instead?
If you are a sole trader the businesses liabilities are yours – if something goes wrong you can be personally liable. Using a Company can LIMIT your liability (hence the use of the word Limited).

Also frankly there can be a perception issue – over a certain size of contract customers generally expect to deal with a “proper” company.
BUT – using a company increases your legal, possibly financial & admin obligations – so there is a cost involved.

There can also be other considerations – if you have other income (say from property) for tax that gets added to your income as self employed – so it needs a careful look.

So what do I do?
We help businesses start all the time – come in & have a chat or talk to another advisor such as a solicitor or your local Chamber of Commerce.
. . .

How to find a good property accountant?

Published: 25/06/2018

It may not be the first profession that springs to mind thinking about property professionals, but an accountant can be mightily handy!
If you are involved in buying property to let – accountants can assist you with tax-related work and make sure you pay the least amount of tax possible on buy-to-let or holiday homes. A good accountant will also help you consider your overall approach to wealth management, estate and income planning, to maximise your overall position from owning property and other assets.

So you do need a good accountant – some questions to ask in finding one:
· How long have you been practising?
· Are you a property specialist/have you got experience in this area?
· Can you please give me a written quote with a full cost breakdown?
· What cloud software do you use (for property accounts) and how do I upload data to you?
· Do you bill for phone calls and e-mails or are they included in the service?
· Are you willing to set a job rate as opposed to an hourly rate?

Typically we advise on the following:
· Recent changes to mortgage interest relief and stamp duty
· Restructuring arrangements
· Capital Gains Tax planning/ER relief/roll over
· S24 and spousal tax planning
· SDLT
· Incorporation and/or use of trusts
· Dealing with HMRC property tax enquiries and investigations
· Considering longer term inheritance tax planning
· Dealing with all compliance issues
· Tax planning and support for families involved in buy to let businesses
· SPV’s/JV’s
· Non resident landlords
· Tax on Airbnb (rent a room exemptions)
· Furnished holiday let’s

As you can see – it is quite a bit and can be quite complex – hence you need an expert.

If preparing property accounts we use QuickBooks & can work with you to make data upload simple and effortless (no more bags of receipts or losing things).
Give our property team a call on 020 8661 7878 or come in for a property related chat



. . .

Benefits in kind reporting deadline fast approaching

Published: 01/06/2018 By Drupen Patel

6 July 2018 is a key reporting deadline for employers who provided employees with taxable benefits in kind during the 2017-18 tax year or reimbursed employees’ business expenses.

What needs to be reported?

Common benefits include company cars, private health insurance and interest free loans. It is not possible to provide a comprehensive list and statutory exemptions allow you to exclude certain benefits and expenses so it’s important you check if unsure.
When?
P11D forms must be submitted to HMRC along with form P11D(b) by 6th July 2018 with all relevant employees provided with a copy on this day. Class 1A National Insurance at 13.8% must be paid by 19th July 2018 (or 22 July 2018 if paying electronically).

What goes wrong?
We often find employers completing P11D’s incorrectly by miscalculating the taxable value
or omitting information such as the fuel benefit where this applies. If you are late or wrong, penalties can be applied as follows:
Overdue:
If you are late there is an automatic penalty of £100 for every month for every 50 employees
Incorrect:
If a P11D and P11D(b) return is incorrect the penalty if based on the percentage of lost revenue and judged according to the taxpayers behaviour.
30% for carless action
70% for deliberate but not concealed
100% for deliberate and concealed

What next?
The complex nature of the rules governing taxable benefits along with the risk of being penalised for late submissions, errors, and omissions mean it is worth taking professional advice to make sure you are fully compliant with your tax obligations.
. . .

Another attack on Buy to Let returns - the abolition of wear and tear allowance

Published: 25/05/2018 By Robert Coyle

What has happened?  
For a variety of reasons the government has decided to make buy to let investing much less attractive to individual investors. For instance the ability to get tax relief on interest payments is being withdrawn in stages.

Wear & tear allowance  
For furnished lets a landlord USED to be able to deduct 10% of rents received as an allowance against the cost of wear & tear on fixtures & fittings – items like furniture, kitchen appliances & goods. This allowance has now been abolished.

Replacement allowance  
Instead, now if you replace an item you can deduct the cost of the replacement in that year’s tax return, but note:
· It is only the cost of replacing – so if you are spending for the first time – say to furnish a new buy to let, the costs are NOT deductible,
· Only replacement costs are allowed – if you are improving (so not replacing on a like for like basis) – then the element of costs that relates to improvement as opposed to replacement is not allowed

Are there any upsides to this?    Hmmm – well:
· Replacement costs do apply to unfurnished or partially furnished rents (so say you provide just a fridge & a cooker but not other items)
· You can plan replacements to occur in a year of likely maximum tax on other items – say you know you will get a big bonus one year but not another, but
· Effectively this is designed to reduce the tax allowances on letting

So what can you do?   Well once again with property it isn’t straight forward:
· The basic angle is that the government is trying to reduce the attractiveness of buy to let as an investment
· If you have only a couple of properties it probably isn’t worth looking at mitigation strategies – so should you review whether you stay in buy to let at all (but this can be a complex decision)
· If you do want to stay as an investor really pay attention to your record keeping – there remain lots of allowable expenses – but we often see clients fail to keep enough records to enable them to claim what they remain entitled to
· If you are a serial buy to let investor a corporate structure may be a better way to hold your properties – but that needs careful consideration & planning

So the advice remains – now is a good time to review your buy to let investments – but it can be a complex decision – talk to our experts to explore your options.
. . .

Tax Efficient Extraction of Profit from Companies for 2018/19

Published: 11/07/2018

By David Payne

The 2018/19 tax year saw changes to the personal allowance and dividend allowance, meaning that many directors of family companies will again be considering the most tax efficient method of paying themselves.

For many years accountants and tax advisors have suggested that director/shareholders should extract profit by paying themselves a low salary with the remainder of their income being extracted in the form of dividends.

Although dividends are not deductible in arriving at the company’s taxable profits, they do not normally attract National Insurance Contributions (NICs). The starting point of NICs rose to £162 a week from 6 April 2018. This is now significantly lower than the £11,850 personal income tax allowance. A salary just below £162 a week, £8,424 a year would mean no NIC would be due but would be sufficient to count as a qualifying year for State Pension purposes (if above £6,032 lower earnings limit).

Remember that employers other than those where the director is the only employee are entitled to a £3,000 employment allowance that can be set against employer’s NICs. If this has not been utilised against NICs on staff wages then consider increasing the directors’ salaries up to £11,850, as the additional salary would save corporation tax at 19% on the £3,426 extra salary which equals £651, whereas the employees NIC would be £411.

As far as the level of dividends is concerned, the rate of tax changes from 7.5% to 32.5% at £46,350 so ideally the dividends should not exceed £34,500 if a salary of £11,850 is paid. The first £2,000 would be taxed at 0% with £32,500 being taxed at 7.5%. Don’t forget that this tax will then be due on 31 January 2020, or under the “payments on account” regime.

Contact us to discuss the optimum way in which you can extract profits from your family company tax efficiently.
. . .

Spotlight on Inheritance Tax

Published: 10/07/2018

By Robert Coyle

Inheritance tax (IHT) is the tax payable on a deceased individual’s estate: in 2018/19, IHT is payable where a person’s wealth is in excess of £325,000 - otherwise known as the ‘nil-rate band’.
IHT is currently charged at 40% on the proportion of the individual’s estate that exceeds the nil-rate band. Both the value of chargeable assets held at death and the value of chargeable lifetime gifts made within seven years of death are included within the estate.

The Residence Nil-Rate Band (RNRB)
On 6 April 2017, the RNRB came into effect, permitting some individuals to escape the IHT net.
The RNRB applies where a residence is passed on death to a direct descendant, such as a child or a grandchild. For 2018/19, the RNRB is set at £125,000 and is set to rise annually thereafter, reaching £175,000 in 2020/21.
The RNRB is in addition to an individual’s nil-rate band, and can only be used in regard to one residential property which has been, at some time, a residence of the deceased. The RNRB is ta  pered at a withdrawal rate of £1 for every £2 for estates with a net value of more than £2 million.



Making the most of IHT reliefs
It’s well worth planning and done carefully there are some great opportunities to better manage your liability to IHT. Examples include:
· Transfers between spouses – are IHT exempt - and can be used in conjunction with other allowances – such as exempted gifts (see below).
· Smaller gifts can fall immediately outside of your estate. Larger gifts can be exempt if survived for seven years. There is taper relief on gifts made between 3 and 7 years before death.
· Some assets can fall outside the scope of IHT – such as AIM shares or agricultural land.
· Trusts are a potentially excellent planning tool – but are complex and need careful use.

A Pitfall
Avoid “gifts with reservation” – for a gift to work it must truly be a gift (although there are ways to carefully structure these).

Live in the South East?
If yes and you own your own home— your estate could easily be caught by IHT. Early advice is essential to best manage this tax.
. . .

So you want to start a business but what type?

Published: 09/07/2018

By Robert Coyle

So you want to start your own business – what type should it be?

You have a choice you can set up as a sole trader or you can use a Limited Liability Company to conduct your trade – which is right for you?

Well there is no right or wrong answer – you need to consider the facts & either could be right for you.

What is a sole trader & what are some advantages?
A sole trader is someone who works for themselves – there is no difference between calling yourself a sole trader or self employed. Either way you carry on a trade, supply services,  have customers etc...

Being a sole trader is the simplest way of starting a business, but even here there are things you must do such as register with the tax man & pay self employed national insurance ( at least Class II NIC possibly more).

In any event you need to…….
· Register as self-employed with HMRC
· Obtain any permits and planning permission that you may need from your local
· If you are going to have premises (say a restaurant or shop) find out from your local authority if you need to pay business rates
· Have public liability insurance
· Sort your financial admin – do you need to register for VAT, how will you keep records & get paid, what will you do for banking etc.
· But being a sole trader can be the simplest & cheapest way for many businesses to operate & is often appropriate.

So should I use a Limited Company instead?
If you are a sole trader the businesses liabilities are yours – if something goes wrong you can be personally liable. Using a Company can LIMIT your liability (hence the use of the word Limited).

Also frankly there can be a perception issue – over a certain size of contract customers generally expect to deal with a “proper” company.
BUT – using a company increases your legal, possibly financial & admin obligations – so there is a cost involved.

There can also be other considerations – if you have other income (say from property) for tax that gets added to your income as self employed – so it needs a careful look.

So what do I do?
We help businesses start all the time – come in & have a chat or talk to another advisor such as a solicitor or your local Chamber of Commerce.
. . .

How to find a good property accountant?

Published: 25/06/2018

It may not be the first profession that springs to mind thinking about property professionals, but an accountant can be mightily handy!
If you are involved in buying property to let – accountants can assist you with tax-related work and make sure you pay the least amount of tax possible on buy-to-let or holiday homes. A good accountant will also help you consider your overall approach to wealth management, estate and income planning, to maximise your overall position from owning property and other assets.

So you do need a good accountant – some questions to ask in finding one:
· How long have you been practising?
· Are you a property specialist/have you got experience in this area?
· Can you please give me a written quote with a full cost breakdown?
· What cloud software do you use (for property accounts) and how do I upload data to you?
· Do you bill for phone calls and e-mails or are they included in the service?
· Are you willing to set a job rate as opposed to an hourly rate?

Typically we advise on the following:
· Recent changes to mortgage interest relief and stamp duty
· Restructuring arrangements
· Capital Gains Tax planning/ER relief/roll over
· S24 and spousal tax planning
· SDLT
· Incorporation and/or use of trusts
· Dealing with HMRC property tax enquiries and investigations
· Considering longer term inheritance tax planning
· Dealing with all compliance issues
· Tax planning and support for families involved in buy to let businesses
· SPV’s/JV’s
· Non resident landlords
· Tax on Airbnb (rent a room exemptions)
· Furnished holiday let’s

As you can see – it is quite a bit and can be quite complex – hence you need an expert.

If preparing property accounts we use QuickBooks & can work with you to make data upload simple and effortless (no more bags of receipts or losing things).
Give our property team a call on 020 8661 7878 or come in for a property related chat



. . .

Benefits in kind reporting deadline fast approaching

Published: 01/06/2018

By Drupen Patel

6 July 2018 is a key reporting deadline for employers who provided employees with taxable benefits in kind during the 2017-18 tax year or reimbursed employees’ business expenses.

What needs to be reported?

Common benefits include company cars, private health insurance and interest free loans. It is not possible to provide a comprehensive list and statutory exemptions allow you to exclude certain benefits and expenses so it’s important you check if unsure.
When?
P11D forms must be submitted to HMRC along with form P11D(b) by 6th July 2018 with all relevant employees provided with a copy on this day. Class 1A National Insurance at 13.8% must be paid by 19th July 2018 (or 22 July 2018 if paying electronically).

What goes wrong?
We often find employers completing P11D’s incorrectly by miscalculating the taxable value
or omitting information such as the fuel benefit where this applies. If you are late or wrong, penalties can be applied as follows:
Overdue:
If you are late there is an automatic penalty of £100 for every month for every 50 employees
Incorrect:
If a P11D and P11D(b) return is incorrect the penalty if based on the percentage of lost revenue and judged according to the taxpayers behaviour.
30% for carless action
70% for deliberate but not concealed
100% for deliberate and concealed

What next?
The complex nature of the rules governing taxable benefits along with the risk of being penalised for late submissions, errors, and omissions mean it is worth taking professional advice to make sure you are fully compliant with your tax obligations.
. . .

Another attack on Buy to Let returns - the abolition of wear and tear allowance

Published: 25/05/2018

By Robert Coyle

What has happened?  
For a variety of reasons the government has decided to make buy to let investing much less attractive to individual investors. For instance the ability to get tax relief on interest payments is being withdrawn in stages.

Wear & tear allowance  
For furnished lets a landlord USED to be able to deduct 10% of rents received as an allowance against the cost of wear & tear on fixtures & fittings – items like furniture, kitchen appliances & goods. This allowance has now been abolished.

Replacement allowance  
Instead, now if you replace an item you can deduct the cost of the replacement in that year’s tax return, but note:
· It is only the cost of replacing – so if you are spending for the first time – say to furnish a new buy to let, the costs are NOT deductible,
· Only replacement costs are allowed – if you are improving (so not replacing on a like for like basis) – then the element of costs that relates to improvement as opposed to replacement is not allowed

Are there any upsides to this?    Hmmm – well:
· Replacement costs do apply to unfurnished or partially furnished rents (so say you provide just a fridge & a cooker but not other items)
· You can plan replacements to occur in a year of likely maximum tax on other items – say you know you will get a big bonus one year but not another, but
· Effectively this is designed to reduce the tax allowances on letting

So what can you do?   Well once again with property it isn’t straight forward:
· The basic angle is that the government is trying to reduce the attractiveness of buy to let as an investment
· If you have only a couple of properties it probably isn’t worth looking at mitigation strategies – so should you review whether you stay in buy to let at all (but this can be a complex decision)
· If you do want to stay as an investor really pay attention to your record keeping – there remain lots of allowable expenses – but we often see clients fail to keep enough records to enable them to claim what they remain entitled to
· If you are a serial buy to let investor a corporate structure may be a better way to hold your properties – but that needs careful consideration & planning

So the advice remains – now is a good time to review your buy to let investments – but it can be a complex decision – talk to our experts to explore your options.
. . .