Common Accountancy & Tax Q & A' s - Jan 2012 Part 1

Can I get some tax back now?
Q: I am a subcontractor and I get 20% tax taken from my receipts by contractors. But I haven’t done any work for the last couple of months. Is there any way I can get some of my tax back now?
A: No. The only way for you to get your tax back is to wait until the tax year has passed, and then submit your tax return. You should enter all of your income- gross of the tax deducted. Your income tax liability will then be calculated. But all of the tax deducted during the tax year under the CIS scheme, will be offset against your liability.
If there are gaps in your income or it is low, you may be due a refund.
In the long term, you may be eligible to receive your payments gross from contractors. But there are criteria to meet, for example regarding the size, history and make-up of the business.

Q: I have just received my Unique Taxpayer Reference as I need to file a tax return this year. What is the next step to filing my tax return?
A: 2010/11 tax returns may be submitted on paper, but the deadline of 31 October has already passed for paper returns. Subsequent 2010/11 tax returns must be filed online in order to avoid an automatic filing penalty of £100.
Therefore, you will now need to register for HM Revenue & Customs’ Online Services and obtain an Activation Code. Please note, it can take seven working days to receive your Activation Code, which means you must register by 21 January 2012 in order to obtain your Code in time for the filing deadline of 31 January 2012.
Alternatively, an accountant can file your tax return for you provided they use specific software- even if you haven’t completed the official form to authorise them to deal with your affairs.

Q: I have only just prepared my accounts and I now realise that my business exceeded the VAT registration threshold. What happens now?
A: You have to register for VAT if your sales in any twelve month period exceed the VAT registration threshold- currently £73,000. Please note the reference to any twelve month period; not necessarily your business’ year end.
So your first task is to work out the date when your turnover went over the threshold. Using this date, register for VAT with HM Revenue & Customs (HMRC) as soon as possible- which you can do online at www.hmrc.gov.uk or using form VAT1 which is available on the same website.
HMRC will then send you details of your VAT registration. But in the meantime, you should calculate the VAT due on your sales from the date you established above- even though you weren’t VAT registered at the time. However, you will be able to reclaim VAT on some of your business expenses. The net of these figures will need to be paid over to HMRC.
Please note, HMRC may also charge you a penalty for notifying them late.

Bookkeeping Tips - Part 2 - Petty Cash Expenditure

Alot of clients dont seem to have any method of recording petty cash expenditure. The business owner sends out their employee to buy milk, stationery, etc and the receipts end up in their pocket, or in a desk drawer, or in the bin!
So what you need is a process, and system.

1. Get yourself a cashbox.
2. Put your initial float (cash) into the box, this could be £5,£10, etc-all depends on how quickly your float gets depleted.
3. Petty cash vouchers - you can buy pre-printed ones, which have spaces for:

For Example:
Date:                    01.01.12
Item:                    Printer paper
Cost:                    £5.50
Requested by:    A.N. Employee
Authorised by:    A.N. Manager

(The italic script is what is filled in,  for each voucher)

The receipt for the above item is then attached to the above voucher.

4. When the float starts to run low, it will need replenishing. So the proprietor/director/manager will top the float up by the standard amount, and record this on a voucher as above.

5. At the end of the month, the cashbox will need to be checked, to see if the cash balance reconciles with the vocuher activity. For example:

Opening Balance Float:     £50
Total Expenditure:             (£48)
Float Top Up:                       £50
Closing Balance Float:       £52

So at the end of the month, there should be £52 in the cashbox. If there isn't then something has gone wrong somewhere, so investigate!
The vouchers can now be coded to the types of expenditure for your accounts, i.e stationery, catering, etc

The key is to maintain the system, so all employees are aware of how it all works, and of course to maintain the physical security of the cashbox.

Questions & Answers - Tax, Business Bank Accounts, Tutors.

I can’t pay my tax
Q: Most of my tax is collected via PAYE, but I have a rental property which I make a small profit on. I have recently drafted my tax return for 2010/11 and my tax liability is £1,500, which I just can’t afford, especially with Christmas coming up. What can I do?
A: You could ask HM Revenue & Customs (HMRC) to collect your tax liability gradually from your employment income by adjusting your tax code. In order to do this, make sure that box 2 on page 5 of the tax return is blank before you file your return and the return is filed by 30 December 2011.
Please note, anyone can request to have their 2010/11 tax liability settled like this, provided their tax liability is under £2,000 and they submit their return by 30 December 2011 (from next year, the limit will be increased to £3,000).
Alternatively, there may be scope to negotiate a Time to Pay Arrangement with HMRC, which is effectively a payment plan.

Category: Income Tax

Separate bank account
Q: I have just started my own business- can you tell me if I should open a business bank account please?
A: Assuming you are not operating a company, you are not legally obliged to open a separate business bank account. However, if you use a personal bank account to put the business transactions through, HM Revenue & Customs will have access to your personal accounts if they were to launch an enquiry into your affairs.
If you operate a company, you must open a separate business bank account for it- in the name of the company.

Category: General Business

Tutors and coaches
Q: I do some private tuition in addition to my job and I have read that the Revenue have launched a campaign aimed at tutors and coaches. Is it likely that I will be affected by their campaign?
A: The Tax Catch Up Plan for Tutors and Coaches is an opportunity for tutors and coaches to come forward and declare any unreported income and pay the tax they owe. The Plan is open until 6 January 2012 and those coming forward are likely to face lower penalties than if HM Revenue & Customs were to find out first that they were not paying enough tax.
If you have any income to report and don’t come forward, HM Revenue & Customs have a variety of legal powers and access to information to identify you, such as information from academic, sport and leisure sectors, and a ‘web robot’.

Q & A's Starting A Business, Vans & Equipment

Q: I have just started my own business. When do I need to register with HM Revenue & Customs?
A: Firstly, you need to work out which tax year your start date falls into. The tax year runs from 6 April to 5 April, so your start date falls into the tax year ended 5 April 2012. You must therefore register by the following 5 October, i.e. 5 October 2012. As you are registering as self employed, the form you need to complete is HM Revenue & Customs form CWF1.
You will also need to pay Class 2 National Insurance which is only £2.50 per week for 2011/12 so most people choose to pay for these contributions via Direct Debit. You will need to complete HM Revenue & Customs form CA5601 if you would like to pay via this method.
Although you have some time before you need to submit form CWF1, avoid leaving it too long. 


Q: We have just started up a plumbing and heating business and we’re going to buy a small fleet of vans and bit of equipment- probably totalling in the region of £60,000. It’s been a while since I’ve run my own business, but I know you used to get 50% of the cost of equipment offset against your profits in the year of purchase and 25% each year thereafter. What are the rules now?
A: In 2008/09 the Annual Investment Allowance (AIA) of £50,000 was introduced, which applied to general plant and equipment. Expenditure up to the AIA can be written down by 100% in the year of purchase. Any expenditure in excess of that or assets brought forward are written down by 20% (writing down allowance). The AIA was increased to £100,000 from 2010/11.
Assuming your vehicles meet the HM Revenue & Customs definition of a ‘van’, they will qualify for the AIA.
Please note, from 2012/13 the AIA will reduce to just £25,000 and the writing down allowance to 18%. If your accounting period straddles two periods when the AIA was different, then the AIA will be prorated. So for instance, if your start date is 1 October 2011 and your period end is 30 September 2012, then your AIA will be:
(6/12 x £100,000) + (6/12 x £25,000) = £62,500

Common Q & A's - Property Accounts & Tax

Buying your children property

Q: My wife and I are retired and we would like to give our son and daughter some of their inheritance now. We’ve thought about buying them a house in joint names, which they could rent out (because they’ve already moved out and live with their families). What would the tax implications be?

A: Firstly, they wouldn’t qualify for Stamp Duty Land Tax Relief for First-Time Buyers, because firstly, they aren’t intending to live in the property and secondly, it sounds like they already own other property.

If you gift the cash to your son and daughter, there shouldn’t be any Capital Gains Tax to pay on the purchase because cash gifts are exempt from Capital Gains Tax. However, there would be Capital Gains Tax implications should they decide to sell it.

Your son and daughter would need to declare their share of the rental income and expenses on a self assessment tax return each year and pay any tax due.

And finally, if you both survive for another seven years then the gift will be ignored for Inheritance Tax purposes. If you don’t, then the cash gift will effectively be included as part of your estate at the time of death, and could be subject to Inheritance Tax depending on the size of your estate.


Selling your home at a loss

Q: My house has been on the market for four months now, so I have decided to drop the asking price. However, this now means that I’m selling it as a loss. Is there any way I can utilise this loss?

A: If you were to sell your house at a profit, it is unlikely there would have been any tax to pay because of Private Residence Relief (PRR). To qualify for the relief, the property must have been your only home and you should’ve used it as a home and nothing else.

The amount of PRR may have been restricted if you have a very large garden, you’ve let part of your entire home or you’ve used part of the property for business purposes.

If you would’ve qualified for PRR (had you made a gain), then I’m afraid you cannot obtain any relief if a loss was generated instead. If your PRR would’ve been restricted, then you may be able to claim loss relief for the part of the gain that didn’t qualify for PRR. But please note, these losses can only be used against other capital gains; not income.

Bookkeeping Tips 1 - Credit/charge cards for business

I come across many businesses who are using cash to pay for small items of expenditure. They use the receipts for their bookkeeping, or make them available to us when we are doing their bookkeeping. Some even do a little spreadsheet for this expenditure-which is nice-bless you!
One way of making this task easier is to use a credit/charge card for your business account (if its available). You simply use this to pay for everything and everywhere that accepts the cards. This way:

1. The bank have summerised the expenditure for you, saving you the job!

2. Everything goes through your business account, so is traceable and much easier and quicker to do your bookkeeping from. You get a statement every month showing exactly what you've spent. With cash its easy to lose the receipts, and its fiddlier to do the bookkeeping.

3. If you lose the statement, then you can request another. With cash receipts, if you lose them- you'll have a job trying to get replacements!

This simple method will save you time, make the bookkeeping less hassle and improve your record keeping.

Common Q & A's regarding Accountancy and Tax - Part 4

Q: I’ve just bought a restaurant and I know that the taxing of tips is a tricky area to get right. But can you tell me in a nutshell what the rules are?

A: The three basic options you have for the payment of tips are as follows:

1. You allow the employees to keep their own tips. In this way, any tax or national insurance due is their own responsibility
2. All of the tips get put into one ‘pot’ (tronc) and you divvy them out amongst the employees. Their tips would then get added to their normal pay and appear as a separate item of pay on their payslip. In this instance, it would be your responsibility to calculate any tax due.
3. You set up a tronc system but someone else manages it (the troncmaster), such as a manager and they will independently manage the tronc scheme. Again, the tips are put into a ‘pot’ and divided amongst the employees but this time it would be the troncmaster who would calculate the tax due. Unlike the above though, a separate payroll scheme would be required, so they would not appear on their normal payslip.

In order to avoid national insurance arising on the last two options, you would need to ensure that the tips are not:

• paid, directly or indirectly, to the employee by you and are not monies previously paid to you by customers, or
• allocated, directly orindirectly, to the employee by you

With regards to the above rules, tips received on cards can cause a bit of a headache, but just remember that last rule. Although you will have received the tip initially and so fail the first test, provided you avoid any dealings with the allocation of them, no national insurance will arise.


Q: I have just paid my July tax bill. But am I right in thinking this payment is roughly based on last year’s (2010) accounts? My business’ profits for 2011 are definitely down on last year, so is there any way I can reduce my payments?

A: Yes you are right; the July payment is based on your previous year’s tax liability. There are in fact two ways that you can reduce your tax payments to take account of a reduction in profits.
Firstly, you can submit form SA303 to HM Revenue & Customs (HMRC). On this form, you must estimate what you think your tax liability for 2011 will actually be and why it has fallen from last year. The form must be submitted by 31 January following the tax year, i.e. a SA303 for a 2010/11 tax return must be submitted by 31 January 2012. Be aware that if you reduce your payments too low, HMRC will levy interest- but you can amend a SA303 if you discover this in time.
Alternatively, you could just prepare and submit your tax return. This will then trigger the comparison of these estimated payments (called Payments on Account), with your actual tax liability. So any over or underpayment will be calculated.