Frequently Asked Questions

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2018

Did you know that an employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff?

There is an exemption from tax, National Insurance and reporting if you provide a party or similar function for employees as long as it meets the following three conditions:

  • £150 or less per head
  • annual, such as a summer barbecue or Christmas party
  • open to all your employees

As long as the £150 per head limit is not exceeded, multiple events can be held throughout the year.

If any of the events cost less than £150 per head, you may be able to count these costs as exempt.

However, you can’t do this if you’ve already used up the £150 exemption on another event.

“If say, there were three annual functions of £70 each per employee, the taxation would cover two of them and the employee would be taxed on the third event,” said Peter Way-Rider, tax manager at Ellis & Co.

For further information about non-taxable payments or benefits, or any other tax matter contact Peter Way-Rider on 01244 343504. 

Cloud accountancy software is revolutionising the way in which business owners deal with their day to day accounting; our team is working hard to train and guide our clients through the process.

Making Tax Digital (MTD) is HMRC’s plan to modernise the tax system that will mark a fundamental change in the way that businesses interact with HMRC. 

From 2019 interaction with HMRC will become increasingly digital, with businesses using Cloud accountancy software packages to record business activity. 

Spreadsheets will no longer be the norm, instead software will link directly to your business bank account so that transitions are automatically captured and included within your accounts on a daily basis.

No more receipts clogging up your desk drawers, you can now take a photograph of your petrol receipt and upload it direct to your accounting app; updating records in seconds.

No more preparing sale invoices to be sent in the post, instead you can create and send them directly to your clients from your phone, and sales figures will be updated instantly within the software.

Data is stored in the cloud and can be accessed by any computer / smartphone with internet access 24 hours a day – seven days a week.

We are ‘ahead of the game’ here at Ellis & Co and offering a service that we know no other accountants in the area offer.

Anna Rowson-Smith, Ellis & Co’s software specialist is helping our clients make the move to cloud accounting; providing three hours of FREE set up and training to all our clients.

Anna has recently added another certificate to her collection and become a QuickBooks Online Cerified ProAdvisor. 

Anna joins colleague Alison Howell and an elite group of ProAdvisors with the skills to better help clients with complex business needs.

“Huge congratulations to Anna on passing her QuickBooks Online Core certification exam,” said Robert Ellis, director of Ellis & Co Chartered Accountants and Business Advisers.

“We are delighted to have another certified ProAdvisor here at Elis & Co.”

The team will be continuing to host Making Tax Digital seminars throughout the year, dates and further details will be announced via our newsletter, website and social media channels.

For further information about Making Tax Digital and accountancy software contact Anna Rowson-Smith on 01244 343504.

April 2018 will see a £3,000 reduction in the tax-free dividend allowance.

The allowance, for shareholders and directors of small private firms, will decrease from £5,000 to £2,000 from April 5, 2018.

According to HM Revenue and Customs (HMRC) the change will affect individuals and households who receive dividend income in excess of £2,000; It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.*

The reduction was announced by The Chancellor Phillip Hammond during his Spring Budget Speech last year (2017).

It was a move designed to provide ‘fairness’ and ‘reduces a tax perk that had been enjoyed by those trading through limited companies and by private investors’.

“This measure will ensure that support for investors is more effectively targeted and that the total amount of income they can receive tax-free is fairer and more affordable, in light of increases to the tax-free personal allowance and the Individual Savings Accounts (ISA) allowance,” said HMRC.

“It will also partially reduce the tax difference between the self-employed and those working through a company.”

The Chancellor said that HMRC estimated the cost of people working through companies at £6bn a year: “It’s not fair and it’s not affordable,” said the Chancellor.

The move is expected to raise £2.63bn by 2021/22.

*Figures from www.gov.uk

Did you know an asset bought for your business, with an expected life of two or more years, does not qualify for normal tax deductions?

You may though be entitled to claim capital allowances (CAs); the most common asset which qualifies for CAs comes under the category plant and machinery.

Machinery ‘an object with moving parts that performs a function’, can cover anything from clocks to printers.

Plant is trickier and is the subject of regular disputes with HMRC.

“A plant is an asset which isn’t a building, structure or machinery and has a function for your business,” said Peter Way-Rider, tax manager at Ellis & Co.

“For example a special bracket needed to hold a machine in place would be classed as an item of plant, this may be an expensive item so ensure it is categorised correctly so you don’t miss out on a CAs claim.”

For advice on this or any other tax matter contact Peter on 01244 343504.

2017

Are you ready for the new General Data Protection Regulations (GDPR)?

European data protection laws are changing and come into force on May 25, 2018.

These new laws will affect all businesses in the UK and the current Data Protection Act (DPA) will be updated to reflect the GDPR obligations.

The GDPR is a framework with greater scope, much tougher punishments and judicial remedy for those who fail to comply with new rules around the storage and handling pf personal data, be it in physical or electronic format.

Why are these new laws being introduced?

Since the DPA was introduced in 1998 technology and the internet have developed at such a rapid rate that these rules are now deemed to be ineffective.

Nowadays, the ease and sophistication of data collection means that thousands of SMEs not only collect personal details, but store, move and access them online.

Personal data is used in everything from sales to customer relationship management to marketing.

A recent report form the Federation of Small Businesses (FSB) claims that SMEs are now more likely to be targeted by cybercriminals than their large corporate counterparts and cybercriminals consider SMEs softer targets.

The GDPR is considered a necessity for the protection of data in a modern internet based society.

What does GDPR mean for SMEs?

Businesses must keep a detailed record of how and when an individual gives consent to store and use their personal data. This means a positive agreement and cannot be inferred from a pre-ticked box.

Customers or individuals have the right to withdraw consent.

Details must be permanently erased.

This means businesses should review their existing data and delete any that they do not have a valid reason to hold it.

The GDPR sets out the legal bases available for processing personal data such as needing it to perform a business contract.

Businesses should review what data they hold, have they got consent and do they need to keep it?

Data should be kept secure and this will require a review of current practices to prevent data breaches.

Personal data is a key tool for SMEs looking to target and retain customers: GDPR means it must be handled with the utmost care.

You should start planning for the GDPR now and consider an information audit and, for many businesses, a change in culture.

In summary, you will be required to:

  • Prepare and maintain documentation on your policy and for compliance with the GDPR.
  • Appoint someone in your business to the point of contact for data protection.
  • Review existing procedures for weaknesses and areas to strengthen ahead of the new regulations.
  • Ensure you have a legal basis to hold personal data and have a valid reason for holding it.
  • Ensure you keep any data protected and secure.
  • Have procedures for reporting date breaches.
  • Keep your records up to date.  

How can we help?

We can introduce you to an expert in this area who can perform an information audit and work with you towards GDPR compliance.

For further information contact us on 01244 343504 or email info@ellis-uk.com

From 2019 interaction with HMRC will become increasingly digital, with businesses using Cloud accountancy software packages to record business activity. 

The end of the tax return is nigh, digital tax is to become a reality… are you ready?

Making Tax Digital (MTD) is a £1.3bn investment programme that will mark a fundamental change in the way that businesses interact with HMRC.

Spreadsheets will no longer be the norm and software will instead link directly to your business bank account, so transactions are automatically captured and included within your accounts on a daily basis.

No more receipts clogging up your desk drawers; you can now take a photograph of your petrol receipt and upload it directly to your accounting app, meaning your records are updated in seconds.

No more preparing sales invoices to be sent in the post; instead, you can create and send them directly to your clients from your phone, and your sales figures will be updated instantly within the software.

And you will never have to worry about back-ups of your accounting software again!

See your accounting figures 24/7, 365 days a year all from your Smart Phone.

HMRC issued ‘Making Tax Digital’ in 2015, announcing these big changes for 2018 and eventually becoming fully digital by 2020; meaning that businesses have a time frame to move from the desktop to a cloud package. 

We are encouraging our clients to switch to cloud accountancy software now.

Ellis & Co Accountants and Business Advisers are experts in SageXeroQuickBooks and FreeAgent accounting software.

Our software specialist Anna Rowson-Smith will be with you every step of the way; offering impartial advice from the start; Anna will review your needs, your resources and offer a solution that is best for you.

Anna also provides three hours of FREE set-up and training to all our clients.

For further information, or to sign up today, email annarowson-smith@ellis-uk.com or call 01244 343504. 

The number of R&D claims made by SMEs has risen by 22% in the last year.*

R&D tax relief came into effect in 2010 with the aim to encourage UK based companies to spend more on Research and Development.

A cash payment or a reduction on a company’s Corporation Tax liability is given to a businesses that spends money developing new or enhancing products or services in science or technology.

The increase of 22% was primarily driven by a rise in the number of SME claims, which totalled 21,865 in 2015-16, up from 17,875 in 2014-15.

HM Revenue & Customs (HMRC) said the increase in the number of claims is likely to reflect the effect of changes made to the SME scheme from April 2012 onwards.

The removal of the requirement for a minimum R&D expenditure of £10,000 has meant that more companies are eligible to apply for the relief.

The most common way for SMEs to claim R&D tax credits was by a deduction from corporation tax (CT) liability, with 12,700 claims made this way for 2015-16, compared to 4,420 claims made for a payable credit.

“Many businesses don’t know they can claim R&D tax relief, or how to go about it,” said Peter Way-Rider, tax manager at Ellis & Co.

“There are a number of costs that qualify for R&D including employee costs, materials, utilities and software.

“The normal time limit for making your claim is two years after the end of the relevant Corporation Tax accounting period.

“This means that even though you may have already filled a Corporation Tax return, you can amend this to reflect any relevant R&D expenditure as long as the amended return is filled within the time limits.”

Ellis & Co can tell you if you are eligible for R&D relief, the full list of expenditure allowable and how much you can claim.

"With December 31 approaching ever more quickly, the opportunity for companies to make an R&D claim for the year ending December, 31, 2015 is running out," added Peter. 

"This relief is extremely valuable so if you think you could be entitled to make a claim for R & D, please contact us as soon as possible."

To find out more contact Peter Way-Rider on 01244 343504. 

*www.gov.uk 

One in four small businesses are affected by fraud in the UK every year, with an estimated loss of £18.9 billion*.

A number of big companies including Amazon and Paypal have spoken out about fraudulent activity; asking members of the public to ignore ‘phishing’ emails, to not respond to text messages and never give out any personal information.

But fraud has many categories and it seems no one is save: identity theft; online fraud; bank fraud; pension scams; holiday fraud; facility takeover and receipt fraud.

13,223 cases of fraud have been reported within Greater London in the last five months alone.*, 3.8 million cases of fraud and 2 million cybercrimes were reported in the UK in 2016.**

HM Revenue and Customs (HMRC) has also made warnings regarding recent fake tax rebate scam emails; text messages, social media and the most recent - create a Government Gateway account scams.

“Some websites, emails or phone numbers can look like they’re part of an official government service or that they provide more help than they actually do,” said HMRC.

“This might mean you pay for services that you could get cheaper or for free if you used the official government service, for example renewing a passport.

“HM Revenue and Customs (HMRC) will never use texts or emails to tell you about a tax rebate or penalty or ask for personal or payment information.”

Action Fraud, the UK’s national reporting centre for fraud and cyber crime, deals with reports of scamming, defrauding and cyber crime from across the country.

Here are some of the scams Action Fraud is currently warning the public about:

Jaff ransomware

Jaff ransomware is currently being distributed in phishing campaigns sent out by cyber criminals.

A phishing campaign is when fraudsters ‘fish’ for victims by sending urgent messages via emails, text messages, phone calls and social media in order to gain access to personal data and bank accounts.

The Jaff ransomware is sent by email as an attached PDF disguised as an invoice/scans.

When opened the ransomware changes all file extensions, the desktop background and places a ReadMe.txt or ReadMe.html which directs victims to a website to pay for the decryption of files.

Invoice scams

Business owners are being warned about a fake invoice scam, where an invoice or bill is sent to a company asking for payment for services or goods.

The invoice says the payment is past its due date and non-payment will affect credit rating.

Fake BT bills

A new fake email currently being sent out steals personal information including usernames and passwords by ‘eavesdropping’.

The email claiming to be from BT is called ‘New BT bill’ and contains a link that once clicked starts up Dridex malware and downloads without even opening a new webpage.

BT have released a statement in light of this email to clarify that ‘BT would never send an email with an attachment.’

WhatsApp

WhatsApp is an instant messaging service used by more than one billion people in over 180 countries – it is also used by fraudsters.

Messages are being sent to users claiming to be from WhatsApp saying their subscription will be ‘ending soon’ and asking for banking details for it to be renewed.

WhatsApp is free, however is didn’t used to be before 2016, so old users of the service are being caught out and the fraudsters are gaining banking and personal information.

How to protect yourself*

  • Don’t click on links, or open any attachments.
  • Always install software updates as soon as they’re available.
  • Install anti-virus software on your computer and mobile devices, and keep it updated. Create regular backups of your important files to an external hard drive, memory stick or online storage provider.
  • If you have clicked on the links, run antivirus software.
  • Fraudsters ‘spoof’ an email address to make it look like one used by someone you trust. Check the email header to identify the true source.
  • Don’t assume anyone who has tried to contact you (via email/phone) is who they say they are.
  • If you are asked to make a payment, log in to an online account or offered a deal, be cautious. Real banks never email you for passwords or any other sensitive information. If you get a call from someone who claims to be from your bank, don't give away any personal details.
  • Make sure your spam filter is on your emails. If you find a suspicious email, mark it as spam and delete it to keep out similar emails in future.
  • If in doubt, check it’s genuine by asking the company itself.

How to protect your business*

  • Know your customers – Fraudsters can pose as a customer, using forged currency, someone else’s payment card or requesting ‘store credit’ with no intention of paying you back. Make sure your sales are guaranteed and learn how to protect your business if any payments fail. Watch out for suspicious orders and use your common business sense.
  • Know your employees – Nearly one in five small businesses have been defrauded by an employee. An employee has access to your key assets and how to get around any processes. Fraudulent activity in the workplace includes: theft of goods, misusing company credit cards, colluding with suppliers and submitting false travel claims. Make sure you know who you are employing and ask for references. Adopt an anti-fraud policy statement.
  • Know your suppliers – More than 670,000 businesses have fallen victim to a fake invoice fraud at some point in their trading history. It is important that you know who your supplier is – do your research before choosing a supplier (for example visiting Companies House for their business records). Check that you are only paying for the goods/services you’ve received and monitor behaviour and performance.
  • Know your assets – Make a list of your key assets (machinery, stock, money, data) and think of a way of securing them (insurance, online data protection). Restrict access to your assets. Protect your identity.

Report it

Report fraud, attempted fraud or cyber crime to Action Fraud online or call 0300 123 2040.

*www.actionfraud.police.uk  

**Based on survey results from the Office for National Statistics (ONS).

Did you know you can earn tax-free cash from renting out a room in your home?

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation.

You can let out as much of your home as you want, but the £7,500 threshold will be halved if you share the income with someone else.

“You don’t need to do anything if you earn less than the threshold, the tax exemption is automatic,” said Peter Way-Rider, tax manager at Ellis & Co.

“If you earn more than the £7,500 threshold you will need to complete a tax return and opt in to the scheme to make your claim.

“If you do not want to opt in to the scheme but still wish to make a claim you can record the amount in the income and expenses property pages of your tax return.”

You can opt in to the scheme at any time if:

  • You are a resident landlord, whether or not you own your home
  • You run a bed and breakfast or a guest house

You cannot use the scheme for homes converted into separate flats.

For further information on this or any other tax matter contact Peter Way-Rider on 01244 343504. 

The personal allowance (the amount of income which you don’t pay tax on) rose from £11,000 in the last tax year to £11,500. For most people, this will result in an increase in pay of £100 per year.

Above this figure, most income (e.g. salary) is taxed at 20% up to the higher rate tax threshold.

The higher-rate tax threshold rose from £43,000 in tax year 2016/17 to £45,000 with effect from April 6th, 2017.

Above the higher rate tax threshold, most income is taxed at 40% up to £100,000.

For income between £100,000 and £123,000 there is a marginal tax rate of 60% as the personal allowance is gradually withdrawn.

Note that dividend income is taxed differently, and for most people they will also have to pay National Insurance as well as personal tax.

The new ISA allowance for the tax year 2017/18 is now in force.

An ISA (Individual Savings Account) is a tax-free way to save or invest.

As of April 6, 2017 the ISA limit for this tax year is £20,000, meaning you can pay up to £20,000 into one ISA account (or across multiple ISA accounts) tax-free.  

There are four main types of ISA: cash ISA, Help to Buy ISAs, innovative finance ISAs and stocks and shares ISAs.

“The ISA allowance is set by the government each year, so the allowance doesn’t roll over to the next tax year, so if you don’t use it you will lose it,” said Peter Way-Rider, tax manager at Ellis & Co.

“To gain maximum benefit from your ISA you should open it at the start of the tax year (April 6), failing that as close to this date as you can.

“You can open multiple ISAs but cannot pay in more than £20,000, every individual has the right to open an ISA, the Junior ISA allowance for 2017/18 is £4,128.”

Higher rate tax relief will be restricted for buy-to-let landlords on the costs of finance, such as mortgage interest, from April 6th, 2017 onwards.

The change is being phased in over three years.

It means that all finance costs (not just loan interest) will no longer be an allowable expense when calculating your taxable rental profits.

Individual landlords will be required to make an adjustment via their tax return.

The adjustment will give you a basic rate tax deduction after the rental profits have been taxed.

This deduction will be up to 20% of the finance cost.

"Unfortunately, this measure will impact on all taxpayers who incur finance costs who report rental business, under Self Assessment and not just higher rate taxpayers," said Peter Way-Rider, tax manager at Ellis & Co Chartered Accountants and Business Advisers. 

"Finance costs include mortgage interest, any payments that are equivalent to interest, and incidental costs of obtaining finance, such as fees and commissions, legal expenses for negotiating drafting loan agreements or valuation fees required to provide security for a loan."

Who is affected?

These new rules only apply to individuals with residential property businesses.

They do not apply to companies.

They do not apply to land and property dealing or development businesses, commercial lettings or furnished holiday lets.

For further information about this or any other tax matter contact Ellis & Co’s tax manager Peter Way-Rider on 01244 343504. 

Yes it is possible to pay into your ‘pension pot’ to reduce your personal tax liability.

For the current tax year, you can get tax relief on pension contributions of up to £40,000.

But, you will have to move quickly - any payments must be made by the end of the tax year, before April 5th, 2017. 

I have a personal tax bill due by 31st January 2017. How is it best to pay this?

As this is a personal tax liability (and not a company liability), ideally it should be paid from personal funds.

If the company has sufficient reserves it is possible to declare an additional dividend in January in order to pay the tax bill, however this dividend would be treated as personal income and would therefore increase any personal tax liability for the current tax year to 5 April 2017.

Alternatively if the company owes you money (i.e. there is a credit balance on your director’s loan account) you could use this balance to pay the tax bill.

As a last resort you could pay a bonus or borrow money from the company, however there are further tax implications to these options.

Please give us at Ellis & Co a call if you would like to discuss any of the above.

2016

You have to pay your corporation tax within nine months and 1 day of the end of the accounting period for your business’s previous financial year. In most cases, the year end is March 31 which would mean corporation tax would be due January 1 of the following year.

If your financial year ends on December 31, you would need to settle October 1.

No exception is made should you extend your accounting period to 18 months.

When do I need to pay my self-assessment tax?

This is one of the least enjoyable aspects of self-employment – first, the rush to meet the self-assessment deadline and then having to meet the resulting tax bill.

Payments on Account is the tax payment method by which the self-employed pay off their tax liability in twice yearly instalments.

The first instalment is due on January 31 (the same day as your ‘balancing payment’ which clears your tax bill for the previous tax year) and the second is due on July 31.

Each tax year runs from 6 April to 5 April so the 2015-2016 tax year covers profits made in your accounting year that ended between 6 April 2015 and 5 April 2016.

  • The profits you made in this period must be declared in your 2015-16 tax return. Deadlines for submission are 31 October 2016 for a paper return and 31 January 2017 for an online return.
  • Tax due must be paid by 31 January 2017.

A VAT registered business can reclaim VAT on travel expenses for business trips including meals and accommodation. You should keep evidence of the expense (a VAT invoice). There is generally no VAT on public transport expenditure (e.g. buses, trains, flights), but there may be VAT on taxi costs if the taxi driver is VAT registered.

If you use one mobile phone for both business and personal reasons many people ask if they can claim the full cost back through the business.

In actual fact the answer is no and you can only claim allowable expenses for the actual business costs.

For Example

If you have a mobile phone contract in your personal name ( and not the business name) and you use it for business as well as personal use you can claim the business share of it back

E.g. your mobile phone bill for the year is £180 and £120 of this is on business calls and £60 on personal calls. You can claim for £120 for business expenses.
It is the same if you have a contract in the business name as the business pays the bill and there is no benefit in kind for any personal element so you can’t claim any personal usage.

HM Revenue & Customs seeks to concentrate their resources in areas where they consider tax is being lost and in recent years they have increased the nature and scope of their compliance visits. This article explains what to expect during a HMRC PAYE inspection.

Grounds for a PAYE/VAT Inspection

While there is no specific reason required for an inspection, there are several trigger points that can increase the likelihood of your company being inspected. These include:-

• Returning company cars without fuel benefit on P11Ds
• P11Ds or P35 forms submitted late
• Information on submitted forms found to be incorrect
• Business has a history of being assessed on previous visits
• Late in filing returns or making payment
• HMRC having uncovered errors in similar businesses or industries

The Inspection: What are HMRC looking for?

HMRC are looking to find errors for which they can charge additional interest and a penalty. They will want to ensure that you are declaring what they perceive to be the “right tax” at the “right time”.

So what happens during the visit?

An introductory discussion with the owner/manager/officers to:

  • Review the activities of the business and note any changes since the last inspection
  • Invite the submission of any voluntary disclosures you might want to make
  • An “inspection” of your business premises to ensure all activities being carried on from them is reflected in your PAYE/ VAT Account.
  • A comparison of at least one year’s annual accounts (usually the last year completed by your accountant or auditor) with both the declared sales and Output tax and the Taxable purchases and Input tax shown on the corresponding VAT returns.
  • A review of the payroll records to confirm that deductions are made in the correct manner and areas such as sick pay, starters and leavers are correctly recorded
  • A ‘walkthrough’ from your primary accounting records to the accounts to confirm there is a correct process for recording the relevant PAYE/VAT data.
  • For VAT only, if the business is operating a special scheme, is this being done correctly?

After the visit

If all goes well you may receive a letter from HMRC confirming that there are no areas of concern. If additional tax is payable this will be reflected in a formal assessment on the business, with details as to how the figures have arose.

A dividend is a payment which a limited company can make to its shareholders out of post-tax profits.

For many small companies, the shareholders are also the directors, and it is often tax-efficient for director-shareholders to pay themselves a small salary and dividends rather than a larger salary.

Before a dividend can be declared, the company’s retained profits should be checked to confirm that they are sufficient to cover the dividend. The company should then have a meeting of directors and document the dividend by producing board minutes and dividend vouchers.

A dividend may be illegal if the company does not have sufficient retained profits (after tax), or if the dividend is not correctly documented.

Once declared a dividend can be paid from the company bank account, or credited to a shareholder’s loan account to be paid at a later date.

If you would like to know more about dividends or have any specific questions, please contact John Moorhouse on 01244 343504 or email johnmoorhouse@ellis-uk.com

If a company car is made available for your private use, you will pay additional benefit-in-kind tax, based on the car’s original list price and co2 emissions.

In recent years, the percentages used to calculate the benefits-in-kind have been creeping up, making it more expensive to buy and use a company car.

A further benefit-in-kind is incurred if the company pays for all fuel, including fuel used for non-business journeys. See the online calculator on our website to calculate the taxable benefits-in-kind.

In addition, the corporation tax relief available for car purchases (i.e. the corporation tax saved as a result of purchasing a car) is restricted, and again based on co2 emissions.

It is therefore often cheaper to purchase cars privately and claim mileage under the fixed profit car scheme.

However, if the car you are looking at has very low co2 emissions (or no co2 emissions in the case of some electric vehicles) it can be cost-effective to purchase through a limited company.

If you would like to check how much a company car may cost in additional tax, please contact us on 01244 343 504.