Tax Saving Advice: VAT is going up to 20%...

Tax Saving Advice: VAT is going up to 20%...: "The standard rate of VAT will be rising to 20% on 4 January 2011. So what should you be doing? InvoicingThe correct rate of VAT to apply i..."

VAT is going up to 20%...

The standard rate of VAT will be rising to 20% on 4 January 2011.  So what should you be doing?

Invoicing

The correct rate of VAT to apply is that applicable on the day the customer receives the goods or services. This means that invoices raised before 4^th January 2011 should charge VAT at 17.5%; invoices raised on or after 4^th January 2011, 20%.

However, if you raise an invoice in January 2011 for goods etc delivered in December 2010, you can charge 17.5%.

Increasing your VAT inclusive prices

To increase your VAT inclusive prices to reflect the increase in the VAT rate to 20% you should multiply your old prices by 120/117.5, which is equal to 48/47.

Deposits

If you take a deposit on goods or a service before 4^th January but deliver on or after the 4^th January then the deposit is subject to 17.5% and the balance at 20%. If you raise the full invoice before 4^th January then the VAT rate is 17.5%.

Continuous Work

If you provide work on a continuous basis, once you pass 3^rd January 2011 you can charge VAT at 20% on the entire bill, including the work done when the rate was 17.5%, so long as you can prove that this is fair. Otherwise charge 17.5% on the work done before 4^th January 2011 and 20% on the rest.

Single Supplies

For single supplies (e.g. decorating a house) carried out over a period of time, you could also issue a VAT invoice before 4^th January on the whole job and, even though the job is finished after 4^th January 2011.  It can all be charged at 17.5% provided your bill has been paid for by the 3^rd January 2011.

Credit Notes

If you raise a credit note after the 3^rd January against a 2010 invoice you should use the same VAT rate on the credit note as per the original invoice.

Suppliers

All the above applies in reverse for invoices you receive from suppliers.  Therefore you should check that you have been charged the correct rate of VAT.

Tax Saving Advice: Guidance on Christmas Parties and Gifts

Tax Saving Advice: Guidance on Christmas Parties and Gifts: "Once again the Christmas season is upon us so this year we've put together a basic guide to help you understand what you need to know about ..."

Guidance on Christmas Parties and Gifts

Once again the Christmas season is upon us so this year we've put together a basic guide to help you understand what you need to know about tax and VAT when it comes to Christmas parties and giving gifts to customers and staff.

Staff Christmas Parties

HMRC allows up to £150 per employee for an annual party as long as all employees are entitled to attend. Be careful though, if the party exceeds the £150 per person threshold then the full amount of the benefit will be chargeable.

The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

• If non-employees attend the party, i.e. partners or spouses, expenditure is allowable for tax. This is providing the total expenditure for the party, including the non-employee guests, amounts to £150 or less per attendee.

• If you are a small, owner-managed business then you are still able to claim up to £150 per employee for any Christmas party or meal, even if just two or three members of staff attend.

•  Where VAT is concerned, the expenditure on non-employees is viewed as entertainment which means the VAT on that proportion of the expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.

Social functions and annual parties

Seasonal Gifts

All gifts to staff including Christmas gifts are classed as taxable benefits, except where they deemed to be trivial gifts.

• An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.

•  Monetary gifts, for example bonuses, are accounted for through the payroll system and taxed in the usual way.

•  Any non-monetary, non-trivial gifts must be included on form P11D.

 

Particular benefits: Trivial Benefits 

Christmas Gifts to Clients

Normally gifts for customers and clients are treated in the same manner as entertainment but gifts (up to £50) carrying conspicuous advertisement can be an allowable expense.

However as with Christmas parties you need to be careful as if the gift costs more than £50 including gift wrap the whole amount will be disallowed.

Common examples of allowable gifts are diaries, pens and mouse mats. The advertisement should be on the gift itself, and not just on the wrapping.

Have an enjoyable Christmas!

Tax Saving Advice: Salford Advertiser Christie Appeal Fundraiser

Tax Saving Advice: Salford Advertiser Christie Appeal Fundraiser: "Salford Advertiser Christie Appeal/TaxAssist Accountants Anniversary Fundraiser – Thursday 9th December We are holding our 1st anniversary c..."

Salford Advertiser Christie Appeal Fundraiser

Salford Advertiser Christie Appeal/TaxAssist Accountants Anniversary Fundraiser – Thursday 9^th December

We are holding our 1^st anniversary celebration and fundraising event in support of The Salford Advertiser Christie Appeal at our office at 6 Memorial Road on Thursday 9^th December 2010 between 5pm and 7pm.

We will be serving refreshments including homemade mince pies and cakes, and mulled wine in return for donations to the appeal.  There will also be a raffle with prizes already donated including:

·         2 tickets for a Manchester United Premier League home game

·         2 ball for golf at the Worsley Marriott

·         Several bottles of wine

·         Boxes of chocolates

Further donations of either raffle prizes or homemade cakes are welcome.

If you are able to come along for an ideal opportunity to start the Christmas season please call or email to let us know.

Tax Saving Advice: Get ready for when an inspector calls

Tax Saving Advice: Get ready for when an inspector calls: "Get ready for when an inspector calls, small businesses across Manchester are urged Small businesses across Manchester are being warned to ..."

Get ready for when an inspector calls

Get ready for when an inspector calls, small businesses across Manchester are urged

Small businesses across Manchester are being warned to prepare for a call from the tax inspector, as a national “grab for cash” targets business owners.

Chris Jones who runs small business tax and accountancy firm, TaxAssist Accountants, in Worsley said that HM Revenue and Customs (HMRC) were expected to massively increase the number of tax investigations they make, in a bid to reduce the tax gap – the difference between tax raised and what is thought to be owed – by £4 billion at the end of this financial year.  He comments:

“Cash businesses across Manchester such as private taxi firms, pubs, corner shops and takeaways, are particularly vulnerable and should ensure they have all their books in order and answers ready.  The investigation insurance company, CCH, has already seen an explosion in new cases, with new claims up 82%* compared to the previous year and this is expected to ramp up even more in the next few months.

“Business owners should not take this attack on their legitimate earnings and hard work lying down. If they ensure they have all the right procedures, records and proof of income and expenditure in place, they can show the tax inspector the door. They should also ask their accountant for fee protection insurance to cover the costs which could be run up in fighting any claims from HMRC.”

Chris Jones said small businesses in Manchester should follow five golden rules when the tax inspector calls:

• Challenge any part of the tax assessment you know is wrong
• Answer all correspondence from HMRC within their deadline – or fully explain why if you need more time
• Anticipate the inspector’s questions – if there is anything to declare do so early
• Ensure your tax advisor is experienced in negotiating with HMRC
• Appeal against any HMRC order to the independent commissioners within 30 days and go to the Tax Tribunal if you have a particular grievance

Businesses under investigation can see any documents held on them by calling the HMRC Data Protection Unit on 0191 225 7575, said Chris.

TaxAssist Accountants in Worsley is a local business itself, operating across Salford and West Manchester,  providing tax and accountancy advice and services to more than 90 small businesses.

Tax Saving Advice: How To Reduce Your Tax Bill: Buy a 'Green' Car

Tax Saving Advice: How To Reduce Your Tax Bill: Buy a 'Green' Car: "Currently you can claim a 100% allowance against tax of the purchase cost of a new ‘green’ car purchased by your business.What is a ‘green‘ ..."

How To Reduce Your Tax Bill: Buy a 'Green' Car

Currently you can claim a 100% allowance against tax of the purchase cost of a new ‘green’ car purchased by your business.

What is a ‘green‘ car?

So what qualifies as a ‘green’ car?

Well, it’s any vehicle which has CO2 emissions lower than 111 g/km.

Examples of such vehicles are diesel powered Mini’s or Smart cars and obviously the Toyota Prius.  For more examples of ‘green’ cars go to www.green-car-guide.com.

Are there any restrictions?

If you purchase the vehicle through a sole trader business or partnership and there is private use of the vehicle then the allowance is restricted to the percentage of business use only.

If purchased through a limited company there is no restriction but a taxable benefit will arise. This means there will be a national insurance charge to the business of 12.8% on the amount of the taxable benefit and a tax charge on the individual using the vehicle.

The good news is that the taxable benefit on a vehicle with CO2 emissions lower than 120 g/km is only 10% of the list price.

Other cars                        

If you purchase a car which is not ‘green’, allowances are still available as follows:

For vehicles with CO2 emissions between 111 g/km and 160 g/km the allowance is 20% of the cost on a reducing balance basis.  An example of a car in this band is a petrol powered Vauxhall Astra 1.6.

For vehicles with CO2 emissions over 160 g/km the allowance is 10% of the cost on a reducing balance basis.  An example of a car in this band is a petrol powered Audi A3 1.6.

The restrictions outlined earlier also apply to cars in this category therefore in many cases it will not be worthwhile purchasing such a car through a limited company.

The Government is reducing these allowances

It is important to note there is a time restriction on these allowances.  The 100% allowance is due to end in March 2013 and the 20% and 10% allowances will be reduced to 18% and 8% respectively from April 2012.

Leased vehicles

If you lease a vehicle the full rental charges can be claimed as a taxable deduction unless the retail price of the vehicle is over £12,000 and the CO2 emissions are higher than 160 g/km.  If this is the case there is a 15% restriction on the amount which may be claimed.

Should I buy a ‘green’ car?

It is certainly worthwhile purchasing a ‘green’ car because substantial tax savings can be made as well as helping the environment.  There are also other costs savings, for example no Vehicle Excise Duty to pay and cheaper running costs. 

However, it is always worth consulting a qualified and competent accountant or tax adviser before committing to any purchase.

How To Reduce Your Tax Bill: Home Office Costs

How to Reduce Your Tax Bill

Home Office Costs

If you run a business from your home and have a home office, then some of the expenses you incur can be deducted from your income to reduce your tax bill.

This article looks at some of the types of expenditure that are usually allowable for sole trader businesses. It should not be seen as an exhaustive list. What is allowable depends on the facts in each case.

Expenses broadly fall into two categories, fixed costs and running costs.

Fixed costs

Some costs relate to the whole house and have to be paid even if there is no business use. These include costs such as insurance, council tax, mortgage interest, rent, general repairs and water rates.

Some particular points are considered below.

Insurance

If the business use is covered by a separate policy then the cost of that policy is allowed in full, with no part of the household policy being allowed.

Otherwise, an appropriate part of the household premium can be allowed.

Council Tax

If business use is established the appropriate proportion of the tax may be allowed under the normal rules for the deduction of expenses.

Mortgage interest

If part of the home is used solely for business then an appropriate part of the mortgage interest is an allowable deduction. Repayments of capital are not allowable.

Rent

Part of the rent is an allowable expense when the home is rented and part is used solely for business purposes.

A sole trader cannot charge a separate rent to his or her own business. This is because individuals cannot rent property to themselves. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used solely for business purposes.

Repairs and maintenance

A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the business. Examples include the general redecoration of the exterior or repairs to the roof.

Repairs that relate solely to part of the house that is not used for the business, such as decorating a room not used for the business, are not allowable.  Equally if a room is used solely for business purposes then the cost of redecorating that room is wholly allowable.

Water rates

If there is no business use of water then water rates is not an allowable deduction.

Running costs

There are some expenses where the total bill may vary with the amount of business use.  They include heat and light, telephone and metered water.

Where there is significant business use it is appropriate to apportion such expenses by reference to the facts of that usage.

Heat, light and power

A proportion of the heating and lighting costs of a room used at times solely for business purposes is allowable.  The proportion should reflect the facts of usage.  Where usage is minor, such as the occasional writing up of records, a reasonable estimate consistent with such minor use is acceptable.

You should take into account the number and nature of any power consuming items involved. A commercial photographer working from home using specialist studio lighting will have a much higher business expense for electricity than a trader writing up records once a week in the spare bedroom.

Telephone

The cost of business calls is allowable and also a proportion of the line rental (based on the ratio of business use to total use).  This proportion should reflect all aspects of use, including incoming calls, though in most cases reference to itemised outgoing calls will provide a reasonable and acceptable measure.

Care should be taken and a flexible approach adopted when considering the level of apportioned business expenditure, relating to all inclusive packages offered by telephone and broadband providers.

Broadband

Expenditure on an internet connection (including broadband and wireless broadband) is allowable to the extent that the connection is used for business purposes.  Where there is 'mixed' (business/non-business) use, follow the approach used for telephone rentals.

Metered water charges

In cases of heavy usage the business part of the property may be separately charged (and so fully allowable) in which event none of the domestic cost is deductible.

In the case of minor business use of the premises, such as writing up records, there is no business use of water and so none of the water charge is allowable.

Apportionment

The expenses detailed above should be apportioned on a reasonable basis, for instance, it is much more accurate if you can work out your exact electricity use, but this may be impractical to do so, in which case you need to work out a % use.

If you are working out a % use for light and heat, then it may be practical to use the same ratio for other costs, but, this depends on the type of user and the equipment used.

It will normally be appropriate to apportion the expenses on the basis of area or number of rooms (excluding bathrooms and kitchen).  In addition you need to work out the % business use of the office during an average week.

For Example:

Diane works from home as a graphic designer.  She uses one room in her house as her office.  There are a total of 7 rooms in the house including the room used as an office but excluding bathrooms and kitchen.  Diane calculates that she uses the room for business purposes 65% of the time on average.  The total of Diane’s household expenses (insurance, mortgage interest, council tax, gas and electricity) is £6,500. 

Therefore Diane claims home office costs of 1/7 x 65% x £6,500 = £604.

Diane also claims a proportion of her telephone/broadband expenditure based on her business usage.

Revenue Enquiries

The extent of business use is a question of fact.  Enquiries are only likely where the amount claimed is significant and appears to be inconsistent with the nature of the taxpayer’s business.  Therefore, although the deduction of home office costs from business profits is a legitimate tax mitigation exercise it should always be carried out on a reasonable basis and should be consistent with the nature of the business.

Other Business Costs

In addition to the household costs outlined already you are able to claim in full for all expenditure incurred in updating, maintaining or repairing computers, printers, fixtures and fittings, etc that are contained in the home office.  If there is any private use of such items then an appropriate percentage should be deducted.

Further Advice

As ever, it is always advisable to seek the guidance of a qualified and reputable accountant or tax adviser before completing your tax return.

Tax Return Filing Advice

Deadline for sending a paper tax return to HMRC

The deadline for sending paper self assessment tax returns to HMRC for the last tax year (ending 5th April 2010) is 31st October 2010.
If you intend to file online you still have until 31st January 2011. However, if you are not registered with the HMRC online service you will need to do this first, so do not leave it until the last minute. Also, if you are not registered as self employed you will need to obtain a unique taxpayer reference number. This can take some time to be processed so do it now to avoid a late return and the subsequent fines and interest charges.

 

Ensure you do not pay too much tax

Of course, if you want to ensure you are claiming all available allowances and expenses in order to reduce your tax bill use a qualified accountant and tax expert. BUT - do it now and avoid the January rush. January is a very busy time for tax accountants so it is best to organise your affairs now otherwise you may find if difficult to find a reputable accountant who can do the work for you before the deadline. Or you may have to pay more for their services to guarantee your return is filed on time.