The Fizz! Blog

You can't abbreviate something that doesn't exist!

Every year almost all limited companies have to prepare two documents - a set of accounts prepared in line with the Companies Act, and a Corporation Tax return for HMRC showing how much corporation tax the company is proposing to pay and why.  HMRC get a copy of the full accounts too.  You can't treat preparing those two things as distinct jobs - the profit you work out in the accounts informs the tax calculation, and then the tax bill you work out via the tax return informs the accounts.  It's two bits of the same job.

There's a third document that the vast majority of small limited companies prepare - abbreviated company accounts.  A company has to make some accounts available for the public to see at Companies House.  It's quite permissible to send in the full accounts, but it's also possible to send Companies House a cut-down version - abbreviated accounts.

Abbreviated is the key word there.  Often, company owners attempting to fulfil the requirements of the law submit abbreviated accounts to Companies House online without giving much or any thought to the full accounts or the tax return.  But the abbreviated accounts just can't be competently done first.  They come last, after the actual accounts and tax return have been done.

Companies House really encourage this by making it temptingly easy to submit abbreviated accounts to them online.  Effectively, bang numbers into a template and keep clicking check until you get a green light.  Down the line, an accountant gets a call saying "I just need someone to do the corporation tax return, I've done the accounts" and the heart sinks.  The corporation tax isn't a separate job, it's part of the whole.  Maybe the abbreviated accounts weren't so wrong that you can't reverse engineer some full accounts that aren't perfect but are acceptably consistent with both the abbreviated version and the truth, and a corporation tax return as well.  But very often that isn't the case - especially if the business is halfway profitable, the fact that the tax bill hasn't been calculated and incorporated means that the abbreviated accounts are doomed to be misleading from the outset.

We don't really blame business owners for this, by the way - it's really driven by Companies House and HMRC trying to produce templates that make it easy for non-specialists to submit something to them.  But - some things are specialist, among them the UK taxation and accounting systems!

So, if you're in that position, bear in mind that to prepare abbreviated accounts you must have something that you're abbreviating!

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Bad news from the Autumn Statement for profitable sole traders and partnerships

There was some pretty bad news for many profitable sole traders and partnerships from the Chancellor in last week's Autumn Statement.

For many years, there's been an opportunity to (quite legitimately) save some tax when transferring an unincorporated business (i.e. a sole trader or partnership business) into a limited company.  If one could reasonably argue that there was some intrinsic value to the business above and beyond just the skills of the owner - effectively, that there's a value there that might plausibly make it a saleable business to a third party - then you could quantify that value and sell it to the company.  That created two tax savings.  First, a one-off capital gain for the owner - generally taxable at a lower rate than income.  Second, an ongoing saving for the company, which could claim tax relief on the cost of the goodwill, over a period of years.  It was a great opportunity for a business of genuine value, and was a mainstream and commonly used tax planning strategy, often generating some really big tax savings.

As of last week, it's gone.  You can still make the transfer of course, and can still place a value on the goodwill.  However, one tax advantage has gone and the other is severely diminished.  The company can no longer save tax on the goodwill.  And although there still might be a modest tax saving for the individual on a fairly small goodwill valuation and capital gain, the bulk of the personal saving was generated by making a claim for something called Entrepreneurs' Relief - and you can no longer make that claim in those circumstances.

So pretty bad news for a lot of businesses that were planning such a move, which nobody saw coming at all.  If you were planning on making a shift into a limited company, it's still very likely to be worth it, since the ongoing tax and National Insurance benefits are unchanged.  But that one-off boost is pretty much a thing of the past.

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Yet another reason not to leave your tax return until the last minute

In a recent tax tribunal, a Mr Hegedus appealed against a fine for filing his 2012-13 tax return late.  His excuse was that his accountant had to get an authorisation code from HMRC in order to act for him, and it takes a couple of weeks for the code to be posted out.  So he felt that gave him a reasonable excuse for having missed the 31 January filing deadline.

Unsurprisingly, the tribunal rejected Mr Hegedus' appeal, on two grounds.  First, that he hadn't even got round to appointing an accountant until the 31 January deadline, and there was no reason to wait until the last minute.  Second, Mr Hegedus had his own HMRC online account, which could in any case have been used to file the return on time.  So he didn't really have a leg to stand on.

As an aside, most accountants don't actually need that authorisation code to be able to file a return for a client anyway - professional tax software enables authorised agents to file returns with HMRC for a client who hasn't yet received that authorisation code.  Relatively few accountants rely on HMRC's own submission system, requiring the authorisation code to have been received and issued.

In any case, the point is - if you leave it until late in the day to think about your tax return, any fines are very likely to be deemed to be your fault.  Given the benefits of doing your return early - being able to budget for the tax for a start  - there's no reason to leave things until deadline day.  If your tax return hasn't already been submitted to HMRC, get on with it now!

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HMRC's fuel-only mileage rates updated

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 (well, less expensive) of late.

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.  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:

https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-september-2015

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.

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Tax Relief at Christmas!

Our usual repost at this time last year!

You may well be planning a Christmas party for your staff - in fact, around here it seems that if you've not booked it already you might struggle to get in!  So, we thought we'd summarise the tax rules around Christmas parties and gifts for you.

If an employer provides a Christmas party that's available to all of its staff (note that this really applies to PAYE employees, as opposed to, say, freelancers), where the cost is less than £150 per head, then it can reclaim all of the VAT and deduct the entire remaining cost from its profits before working out its tax bill - effectively, if a normal VAT-registered limited company holds its party at a normal VAT-registered venue, every £100 spent on the party ends up costing the company £67.  Actually, those allowances apply to annual events, not specifically Christmas ones - so you could have, say, a summer barbecue *and* a Christmas party costing less than £150 a head in total and still reclaim all of the VAT and get tax relief on the balance.

If your company has only one employee, you, then that's cool - you can still take advantage of the concession and go out for a nice meal with a partner, and save VAT and corporation tax as long as you stay within that £150 per head allowance.

If you want to give a Christmas gift to staff, then in practice HMRC consider a relatively small item like a turkey or a fairly normal bottle of wine to be trivial, and won't try to tax the employee on the value of the gift.  Assuming there's VAT on the gift when you buy it, then once more the ultimate cost of £100 of staff gifts to a normal VAT-registered limited company employer will be £67.  Anything more valuable the employees will have to pay tax on - and you'll have to pay National Insurance too.

If you give gifts to customers, then they'll only save you tax if:

• The total value of gifts in a year to the customer is less than £50,
• The gift has a clear advert for your business on it, and
• You can't eat, drink or smoke it!

If you want to give a customer a bottle of whisky then that's still completely fine, and may well make great business sense!  It's just that for every £100 you spend on gifts like that, it costs your business the full £100 - you can't reclaim any VAT or reduce your corporation tax or income tax bill at all.

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