Archive for the ‘Tax Advice’ Category
Capital Gains Tax – The What and the Why
In the UK when we profit from selling something, or even from giving something away, there is a tax attached to that profit; this tax is called ‘Capital Gains Tax’ and every time we dispose of things like shares or property there is a chance that we may need to pay it.
When we get rid of an asset and make a profit, whether we sell it, gift it, put it into someone else’s name, swap it for something else or receive a payout in lieu of something that has been stolen or destroyed, the profit that we make may be subject to Capital Gains Tax.
However, the assets subject to CGT do not include our personal car or the home where we live or any personal possessions up to £6,000. As well as these exceptions, there is also an amount set each year, up to which we are allowed to profit before Capital Gains Tax kicks in; this amount is known as the ‘Annual Exempt Amount’ (for 2010-11 it was £10,100 per person).
Capital Gains Tax is currently charged at 18% on all gains made. It is important to remember that disposing of assets and making gains can happen at all sorts of points in one’s life when there was perhaps no intention of making a profit, for instance, if you separate or divorce and belongings are moved between you and a financial gain is made Capital Gains tax will be payable on amounts over the ‘Annual Exempt Amount’.
Capital Gains Tax was introduced to prevent those of us who would otherwise escape paying tax on taxable income, by converting it in to tax-free gains; the Capital Gains Tax means that this income is also included in our taxable income. This tax tends to hit those of us selling second homes or stocks and shares hardest, as it was designed to harvest revenue from the profit made on such activities.
Increasing Capital Gains Tax is often a popular choice when governments are looking to raise revenue, perhaps because it was traditionally seen as the tax that affected mainly the well-off, who could better afford the extra burden, however, nowadays it tends to be pensioners selling second homes to fund their retirements or ordinary people who have invested in shares as a way of saving that are affected the most.
In our current economic climate, it looks probable that our government will need to take drastic measures to raise money and the possibility of Capital Gains Tax increases is looking more certain; on top of any increase there is also the option of lowering the ‘Annual Exempt Amount’ and setting it at a level that spreads the net wider catching more tax payers in it.
There are however, ways to reduce, escape or defer Capital Gains Tax in some cases, so it is worth sitting down with your accountant to explore the options available to you, a professional tax advisor will be able to explain what if anything you can do to lessen the amount of tax you might have to pay.
The VAT Cash Accounting Scheme: The Basics
Accountants in Manchester – VAT Tax Tips
In our current challenging economic times, it has become a fact of business life that there is far less money to go around. Because of this, businesses are tightening their credit control and chasing debts harder than they might usually do. In turn, debtors are delaying payment as long as possible and trying to stretch credit terms out for as long as they possibly can.
With businesses finding the days of fast payment long gone, cash flow issues abound, especially for the ever pressed small business. In such trying times anything that the Tax Man can offer to help out is a positive boon. The Cash Accounting Scheme is therefore an incredibly useful lifeline for today’s struggling business community.
In the simplest of terms Cash Accounting for VAT allows qualifying businesses to pay VAT only once a customer has paid them for the goods or services they’ve provided, as opposed to standard VAT accounting where by businesses must pay VAT on their sales, regardless of whether or not a customer has paid. In the current climate standard VAT accounting may see businesses shelling out VAT on sales that they may be waiting a very long time to get paid for.
Not every business qualifies for the scheme of course. To qualify your business’ estimated turn over for the year must be less than £1.35 million, making this scheme an ideal tool for small businesses that could do with a helping hand as they struggle with cash flow difficulties often exacerbated by bad debtors.
As well as the obvious financial benefits of using the scheme, there are other advantages for businesses including simplified record keeping. If a manual record system is being used VAT can be accounted through a simply cash book, without the need for a separate sales/purchase day book; on a spreadsheet it can be recorded alongside the expense payments.
The scheme is obviously most valuable to those businesses that have to wait the longest for payment from their customers and conversely those businesses that receive instant payment for goods or services could actually find themselves worse off under the scheme as they would no longer be able to reclaim VAT before they have settled purchase invoices; in a similar vein the scheme does not benefit businesses with sales that are all or mostly zero-rated (in the range of VAT but rated nil e.g. books, children’s clothes, basic foodstuffs or prescription drugs.)
If a business opts to use The Cash Accounting Scheme for VAT, it is not obliged to notify HMRC either when it joins the scheme or if it decides to leave it. There are no application forms to complete and providing a business qualifies, the scheme is free to enter. If a business is already registered for VAT it must enter the scheme at the start of any VAT period or if it is not already registered on the day that its registration begins.
Although businesses must have a turnover of less that £1.35 million to qualify to use the scheme they will not be forced to leave it until their taxable sales exceed £1.6 million.
When to Register Your Business for VAT
Manchester Accountants – VAT Tax Tips
The world of tax as it applies to you and your small business is an incredibly important one, and yet often more than a little confusing; one of the areas that seems to confuse most is that of VAT (value added tax). Most business owners know that they must register their business for VAT but are a little unclear as to the exact rules. If and/or when one should register for VAT is a common question that many businesses would like a simple answer to.
There is in fact more than one type of registration, which is probably what confuses people; ‘compulsory registration’ is, as its name implies, the point at which the law says you have to register your business. Here in the UK, this is when the value of your business’ taxable commodities and services reaches £70, 000 in a year. As well as the previous twelve months, the law also states that if you are aware that you will reach this figure in the next month you are also obliged to register.
You are obviously not obliged to register for VAT if your business does not reach this threshold, but many businesses do choose to do so; this is called ‘voluntary registration’ and it has both advantages and disadvantages.
One of the reasons that a business may choose to voluntarily register for VAT before they reach the UK threshold is that when a business regularly invoices other VAT registered customers they are able to claim back some or all of the VAT charged on their purchases.
Voluntarily registering your business for VAT can also improve your business profile by leading other businesses to infer that you have a much higher turnover than you actually do. This will open streams of business to you from those wishing to do business only with larger concerns as they include you in the mix.
However, once you have registered for VAT you will be required to submit a VAT return each year; adding to your business’ paperwork and form filling obligations will obviously add to your workload; something to be considered if you are a small business owner struggling with an already full time table.
It is not recommended that you voluntarily register for VAT if your only customers are the general public, who cannot claim back the VAT that they pay, as you will have to add an extra 17.5% to your prices, which could make you uncompetitive, better then to wait until compulsory registration kicks in, at which point your larger turnover may allow you other ways to increase your commerciality.
Whatever size business you have, making a decision about when to register for VAT without first sitting down with your accountant and discussing all of the options open to you would be fool hardy to say the least; most accountancy professionals have a good working relationship with HMRC and an in-depth understanding of the benefits and disadvantages of each alternative, so use their knowledge to make the best decision for your firm.
In simple terms you must register for VAT if your business is over the VAT threshold, but if it is under it you have a choice; choosing to register voluntarily is beneficial for some businesses and less so for others, but the ways in which this will effect your own business are probably best explored by someone with an understanding of its financial history and its future forecasts.
Accountants in Manchester – Tax Planning in the UK
What can you do to reduce your income tax liability if you are self employed or own your own Limited Company? There are many things that you can do that are Tax Avoidance as opposed to Tax Evasion. The first, Tax Avoidance, is legal where as Tax Evasion is not.
Here are some simple ideas which are Tax Avoidance but as in all things one should take independent professional advice before committing them selves to any course of action.
If your wife or children help you in your business then of course you should provide a commercial form of remuneration for the work that they do. Obviously this has to be on a commercial basis and be in line with what you would be paying some one who was not a member of your family. The arrangement should be at arms length.
We come across many situations where the wife takes calls and make appointments but does not earn a salary. If she has no other income then her personal allowances can be used to a very good effect both as a legitimate tax deduction in her husbands’ business but also to use up her tax free allowances and providing income which is tax free up and to the point that she earns more than her personal allowances.
The same can be said for children who can use computers and perhaps provide data entry services for their parents business. A few hours a week on this type of work can easily build up to say £2,000 a year. This money could be put towards an education fund or even to start a pension plan.
If the wife uses her own car for business errands (not a vehicle owned by the business) then she could claim mileage expenses on the business miles travelled.
If the business is based at home then a charge can be made for “Use of home as office” and again this has to be commercial based on actual space and costs incurred. This could include a percentage of light and heating and any other additional costs that the business has incurred.
With a Limited liability company you can pay a dividend and save National Insurance.
You might also set up the company with different classes of share capital which could be issued to members of your family. This way it may be possible to steer income to members of your family even if they were not working for you. Again over a few years this could provide quite a useful nest egg.
Tax does not need to Taxing but some planning does help.
Pension Planning is not as effective as it once was due to the fact in part that under Gordon Brown the current UK Prime Minister when he was chancellor of the exchequer he has made it far less attractive in terms of growth. At his first budget in 1997 he struck a harmful blow at Pension Funds as he cancelled advance corporation tax at a stroke which meant that the pension funds could no longer reclaim the tax on their dividend income. In my view that was a touch less than cautious as by making the stock market a much less attractive for pension funds to invest for income he helped create a UK stock exchange slump. With that came the fact that many pension providers ran into to very serious problems and indeed the oldest mutual company UK Company was brought to its knees in 2001.
So as regards pension planning there may be opportunities to consider but it might be a good idea to use up your ISA investment opportunities first as the income from those will be tax free whilst pension income is taxable. Also the ISA is accessible whilst the pension would not be until you reached the age of 55.
A wide mix of savings products is a good idea and pensions should form part of that mix but a much less and lower element than previously due to the meddling of Gordon Brown.
Accountants in Manchester thanks Peter E Jones for sharing knowledge with our readers.
The Author writes many articles on Income Tax, Tax and Pension Planning for more information please go to UK Tax Refunds
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3 Quick Tips On How To Save Money On Your Business Tax Preparation
Accountants in Manchester Tax Advice:
The old saying that death and taxes are the only two unavoidable occurrences of life holds true. If you want to keep your tax preparation bill to a minimum, there are a few things you can do to cut the costs.
- Don’t send originals of your receipts to your accountant. Make photocopies of them all yourself and forward the copies to your accountant. This will save you the cost of having their staff perform that task for you.
- Do have everything in order. If you are waiting on forms, don’t submit your information until you have everything you need. This will prevent your CPA from having to look at the file twice.
- If you do not have a bookkeeper on staff, do at least sort all of your expense receipts into categories and tally everything up. This will cut down the number of hours you pay your accountant.
If you take the time to prepare your books for the accountant, you will keep your fees lower,get your books done quicker and there will be less likelihood of any glitches or hiccups in the process.