But the fact is - fulfilling those aspirations whilst not making any money is relatively easy. What's difficult is to do that *and* make a good living for yourself.
We're currently looking for a Practice Manager to work with us here at our office in Thame. This will be a completely new role here, and there's lots of flexibility about what it will involve. It'll definitely involve:
It might well involve becoming involved in payroll and bookkeeping work too, if that was a good fit. We're flexible about whether it would be a part-time or full-time position.
If you think you might fit the bill, please do get in touch with us!
The idea of the Flat Rate Scheme for VAT is supposed to be to make record-keeping easier for businesses. Record-keeping for most professionally-run small businesses isn't that hard anyway, so in reality the big winners from the FRS are those businesses who manage to park themselves in a business category that results in their paying over a smaller amount of the VAT they've collected from customers than HMRC would like.
This is very common, because the list of FRS categories is pretty poorly drawn up, and is full of gaps and ambiguity. HMRC's answer over the years to this has not been to redraw the list of categories so that it's better, but to put some guidance behind it saying what categories HMRC believe should be used when the nature of a business doesn't fit the list (which in our experience is probably at least 25% of the time). The thing is, the guidance has absolutely no legal basis at all. HMRC haven't accepted this, and have tried to enforce back-VAT and penalties against businesses who went on the basis of the list, not the guidance - the classic example being a mechanical engineer, who chose the "other" category since mechanical engineers weren't listed. HMRC insisted he should have used the "civil engineer" category. They lost the case, because he explicitly is not a civil engineer, so "other" was accepted by the tribunal as being far more appropriate.
HMRC have now realised that they're losing that battle, and have now accepted that they can't go back and collect more VAT as long as your choice of category is reasonable. What they haven't said is whether some day they might just amend the list and make it functional!
In the recent case of X-Wind Power Ltd vs HMRC, X-Wind paid a heavy price for sending the wrong form to HMRC.
The company wanted some new investors to benefit from SEIS - the Seed Enterprise Investment Scheme. This is an investment incentive that means an investor can get 50% of the amount they've invested in a company back, via a discount on their own tax bill. For companies and investors that qualify - as was the case here - half-price investment is obviously a great deal.
However, the company made a mistake. Accompanying a covering letter saying the company was applying for SEIS status, they sent a completed application form for the confusingly similarly-named EIS - the Enterprise Investment Scheme. That's still an appealing scheme, but it only offers 30% income tax relief, not 50%. Unfortunately for X-Wind, they filled the forms in accurately and HMRC were happy to accept them.
Nobody noticed this blunder until a new round of investors came on board, and the company attempted to get SEIS clearance for the new investors. HMRC rebuffed them - one of the rules of SEIS is that the company can't previously have claimed under EIS. HMRC were insistent that the company had made a successful claim under EIS, albeit totally by accident. Not only would the first round of investment get only 30% tax relief, not 50%, but so would all subsequent rounds.
You might reasonably think that HMRC should have gone back and revised the previous application, since the company's intent was clear. In fact, you might think HMRC should just have read the letter properly in the first place, and rejected the EIS form when they originally received it. We do. But instead they've stuck to their guns, saying the letter has no statutory weight but the form does. And HMRC won when the case went to the First-tier Tribunal.
It's unbelievably harsh, and not what we would have expected to happen - despite their reputation, HMRC can actually be pretty reasonable much of the time. But it does emphasise the importance of using advisers or consultants who are really familiar with the tax relief you're claiming, and taking care that the forms you're completing and the process you're going through is the right one. The nature of tax means that, if you get it wrong, it might be years before you realise your mistake, and too late to do anything about it.
If you (or a staff member) have to travel abroad for work, then of course your company can reimburse you for the costs of accommodation, food and drink (or pay them directly). If the company is reimbursing you, then there’s two methods of doing it.
The most obvious method is that you just make an expense claim for the actual costs you’ve incurred, and the company keeps it on record with (ideally) the associated receipts.
But if you’re horrible at keeping receipts, or you’re a cheapskate when you travel, there’s an alternative method. HMRC has country-by-country (and in many cases city-by-city) benchmark rates, and you can just pay those to the employee instead. If the employee “profits” from the arrangement, that’s fine, there’s no tax to pay. Of course, they do have to be incurring actual costs – if they’re staying with a friend they can’t claim the benchmark rates as if they were paying for a hotel!
You can find the rates here (the rates from 1 October 2014 are the relevant ones; they were left in place for the year from 1 October 2015):
Fifty quid, that’s the answer, according to HMRC at least.
For an awfully long time, it’s been accepted by HMRC that if an employer provided a “trivial” benefit to an employee or director, the recipient didn’t need to pay tax in return for the privilege. That’s why you don’t pay tax as a result of your employer providing free tea and coffee in the office. HMRC accepted that was trivial.
Exactly where the line between trivial and non-trivial stood wasn’t stated, it was just left to everyone’s judgement and common sense. If someone had asked us if giving an employee something worth £40 was trivial, we’d probably have said no, depending upon context.
But now it’s been made explicit. Under £50 is trivial, which is higher than anyone reasonably would have expected. So the answer now if we’re asked if a gift worth £40 to employee is trivial, is – yes, it is, and the employee doesn’t have to pay tax.
This is very helpful. Lots of employers provide, say, drinks after work from time to time. Last year, we’d have said that there was a theoretical risk of an enthusiastic tax inspector totting the year’s drinks up and trying to tax each employee on their share. Not any more (unless you’re handing out some very expensive drinks) – it’s quite safe to put some money behind the bar and not worry about staff getting a tax bill down the line.
There are a few caveats, as you’d expect, but they don’t stop the new interpretation being helpful. First, a director can only benefit up to a maximum of £300 of trivial benefits a year. Fair enough. Second, the trivial benefit can’t be cash, or a gift voucher that can be exchanged for goods (though an “experience” voucher is fine). Third, it only applies to benefits that are non-contractual, so you can’t promise the benefits to anyone, and if you took everyone to the pub every week, HMRC would be able to argue that it had become implicitly contractual.
But those warnings notwithstanding, this is still pretty helpful news!
One of the good things to come out of the Chancellor's Autumn Statement last year was the announcement that from April 2016, the rental income that individuals could receive tax-free from renting a room in their home would be increased from £4,250 (the limit since 1997!) to £7,500 a year. If you're thinking of taking in a lodger, this means that there's now even more chance that you'll pay no tax on the rent you receive.
There are a few things to keep in mind, though. If you own the property jointly with someone else, then the limit is £3,750 for each of you. Also, you should let your insurer and your mortgage lender know that you've got a lodger - and don't forget that if you currently live in the house on your own, you may lose the single person discount for Council Tax once you have a lodger.
If you've got any questions about how the Rent A Room scheme works, do get in touch!
We don't usually put our monthly email on the blog, since it's a client care thing to us rather than a marketing thing. But from time to time we like to give a flavour of it to people we don't work with, so here's the summary of the Budget that we sent out to clients and contacts yesterday.
It was Budget day yesterday.
In 2010 the government set up the Office of Tax Simplification. It must be the most ineffectual governmental agency of all time, since yet again in this Budget tax got more complicated still. As we wrote in a blog the other day, we’re in a bizarre period where the government is obsessed with making it easier for businesses to submit tax returns, but virtually impossible for them to work out what should go on them. Anyway, here are the aspects of yesterday’s Budget that we think will be of most interest/use to you.
The biggest news might be the new sugar tax - but we don't think it's massively relevant to our clients' businesses!
A good budget for small businesses?
That seemed to be the general verdict afterwards. It’s clever stuff by old George, because he got the bad stuff for small businesses (like tax on dividends) done in the Autumn Statement a few months ago, and that’s forgotten about by the time the proper Budget comes around. Overall there was more good than bad, but a few high-profile bits weren’t as good as they sounded on the face of it.
This was a classic headline-grabbing announcement that when you think about it, isn’t all that amazing – the ideal thing for a Budget, basically.
The idea sounds innovative – an ISA that can only be taken out by someone under 40 (but continued once they’re over 40), that the government will top up by a pound for every four pounds you contribute (you can put in up to £4,000 in a year, they’ll add up to £1,000), as long as the money is used for a first-time house or flat purchase, or saved until you retire. Pretty good, right?
But, if you think about it, there’s already a system whereby the government will top up your investment by (at least) a pound for every four pounds you contribute, as long as you save the money until retirement. It’s called a personal pension. So the innovation here is purely that you can get at a bit of your retirement provision early, as long as you use it for your first property purchase. Nice, but not revolutionary. Plus, you can actually get retirement funds out of a traditional pension at a younger age, and often get a higher rate of government contribution. So this Lifetime ISA not necessarily as brilliant as they'd like you to think.
Stayed the same, after all the fuss in the papers over the last few weeks.
Nothing of interest to report. Going up a bit, as you’d expect.
Contracting to the public sector
This is very relevant to a number of you. The public sector uses a lot of freelancers/contractors invoicing via their own limited companies. The Chancellor announced widely-anticipated moves to ensure that those people don’t save tax or NICs by doing so. From 2017 (not this year, next year), the public sector body will be responsible for the calculation and payment of the freelancer’s tax and NIC on the contract, apparently.
It’s utterly absurd really, because if the government are so concerned about government workers paying the same tax and NIC as they would do if employed via PAYE, then THEY COULD JUST EMPLOY THEM VIA PAYE. It’s hardly rocket science. There’s no need to layer on new tax laws, just change your own procurement rules – you’re at fault here, not the freelancers. Anyway, it’s happening.
Capital Gains Tax
A bit of a rabbit out of the hat - but it's not remotely the tax cut it appears. Capital Gains Tax is currently 28% for higher-rate taxpayers, and it’s going down to 20% from April. For basic-rate taxpayers it’s going down from 18% to 10%.
The thing is, at present, most people selling a business only pay 10% anyway, because they can claim something called Entrepreneur’s Relief. So no change for them. And for another large chunk of CGT-payers - those selling rental properties or second homes - it's staying at 18%/28%. So it might just be a rather small proportion of those paying CGT who will save anything here. Clever work, George.
Insurance Premium Tax
Another clever thing. IPT is going up by 0.5%. So your insurance will get a little bit more expensive, but you'll blame the insurance company. It's a great tax to increase if you're a Chancellor.
New £1,000 tax allowances
There was not much detail on a couple of new tax-free allowances, of £1,000 each, below which you don’t need to tell HMRC about the income. If we describe them as the “side business/eBay trading allowance” and the “Airbnb allowance” then that probably sums them up. Since one suspects that not that many people were telling HMRC about income at that level anyway, this is more admin than anything else.
Corporation tax going down (eventually)
A further reduction in corporation tax in a few years' time – to 17% - was announced. This was just continuing a general trajectory of decreasing rates starting in 2017, so it’s probably what we’d have guessed would be happening anyway.
There was bad news for trainee accountants still to do their tax exams, as a tranche of measures was announced designed to restrict the way very big companies can save tax on losses or on interest payments to overseas associates. But they’re for companies far larger than those reading this email, happily.
Abolition of Class 2 National Insurance for the self-employed – don’t get too excited
Self-employed people pay two types of NIC, one very small (Class 2), one generally much bigger (Class 4). The very small type is going, which was widely known already. Don’t be surprised when the big one goes up a bit to compensate!
Small Business Rates Relief
At present, only businesses with premises with a rateable value (basically a theoretical annual rent that appears on your Business Rates bill) of less than £6,000 qualify for a discount on their Business Rates. This is going up, and premises with a rateable value of up to £15,000 will qualify (to get a picture of what kind of premises that covers, imagine somewhere just marginally smaller than our office. Gah!).
Stamp Duty on Commercial Property
Just as Stamp Duty on residential property changed from a "slab" system to a "stepped" system a year or two ago (which was good and sensible), now Commercial Property Stamp Duty is changing similarly. As with the first change, Stamp Duty on 90% of transactions will stay the same or go down, with just the most expensive 10% going up. There are transitional rules if you're in the middle of a purchase.
If anything else came up in the Budget that you weren't clear on or think could be of use to you, do call or email - we'll be pleased to talk about it. Similarly, if you'd like to talk about any of the topics above, let us know - though bear in mind that the nature of these things is that often the detail won't yet be finalised/published/understood.
Over the last 10 years ago, there's been a drive in government towards making accounts and tax returns easier to submit. On the face of it, you'd think that was a good idea, but in fact in many cases it really isn't.
The purpose of accounts is to be useful. They tell you how your business is doing, how different parts of it are doing compared to other parts, what the trends are in different areas, how much you're spending on key costs, what margin you're making on your products and services, and an endless list of other things. Ultimately, they tell you if you're wasting your time. Maybe you should really be running a different business or getting a job. Accounts tell you that. They're very, very important.
If accounts can be useful AND easy, that's great. But if they can be useful OR easy, then useful wins.
The problem is that many changes positively make accounts easier to prepare, but less useful. For example, since 2013 unincorporated businesses have been able to prepare accounts on the cash basis. Proper accounts identify what income a business has truly earned in a year, and what costs it has really incurred, regardless of exactly when the related cash comes in or goes out of the bank account. If a customer pays you one day late, on 6th April 2016 rather than 5th April 2016, that doesn't somehow make 2015-6 a worse year, and 2016-17 a better one! But that's what accounts prepared on the cash basis will show - that the 24 hour payment delay has made one year worse and another better.
This can render accounts totally meaningless, in order to make them marginally easier to prepare. Your accounts no longer tell you anything useful about the business, and whether you're wasting your time, they just make it slightly easier to fill a form in later on. It also actively encourages people to delay seeking payment from their customers! It'd be great business practice to get a deposit up front on a big job, but on the cash basis you're encouraged not to. Total, total madness.
We've written before about how a big red flag for us with a potential limited company client is when they say they've done their accounts for Companies House, and need help with the company's tax return, or that they've done the tax return, but need help with the accounts. It's two bits of one job - you can't competently do one without considering the other. But the government-provided submission systems for both make it possible to keep sticking numbers into a template until you get a green tick, and then submit whatever it is you've done. A large number of limited company owners seem to be under the impression that sticking numbers into a template until a green tick appears represents accountancy.
Of course, in parallel to successive governments trying to make the submission of returns easier, the tax code has become more and more complicated every year. So we've got an absurd situation where the "correct answer" is harder and harder to work out each year, but submitting your answer to the authorities is easier and easier.
Anyone who knows us at all will know that this is not sour grapes in the slightest - we're not concerned at all that more businesses are having a go at doing their own accounts and returns; there's an unlimited amount of business out there still and we do just fine. We just think it's genuinely a risk that accounts and tax returns are being framed more and more as red tape, and that the point of them is being forgotten. Accounts aren't red tape. They really matter.
Taxman-approved fuel-only mileage rates changed on the 1st December. They're almost all down a bit, since fuel's got a bit cheaper lately.
These are the rates that HMRC are happy for employers to use a) to reimburse staff for fuel used for company business that they've paid for and put in company cars, or b) reclaim from staff the cost of company fuel they've used for their own private motoring. But they're also the rates that businesses can use to reclaim VAT on some of the mileage allowances paid to employees and directors.
Employers can pay a mileage allowance of up to 45p a mile, tax-free, when employees use their own car for business (plus 5p a mile if they've got a colleague with them!). That hasn't changed, it remains 45p. You can’t reclaim VAT on all of the 45p, but you can reclaim VAT on the part that represents fuel, as long as you retain VAT receipts covering the cost.
The new list of rates is here:
If you're VAT registered, not on the flat-rate scheme, and failing to reclaim VAT on your mileage costs at all, you should start. You can even reclaim some of the VAT you've missed out on in the past - get in touch with us to find out how.