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Welcome...
To July's Tax Tips & News, our newsletter designed to bring you
tax tips and news to keep you one step ahead of the taxman.
If you
need further assistance just let us know or you can send us a question for
our Question and Answer Corner.
We are
committed to ensuring all our clients don't pay a penny more in tax than is
necessary.
Please contact us for advice in your own specific
circumstances. We're here to help! |
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July 2009
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| Tax Savings of
Incorporation |
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You can still save tax by operating your business through a
company rather than as a sole trader or partnership, but the level of tax
savings will depend on the range of salary, dividends and benefits that you
want to take out of the company.
If you take a salary equal to
the personal allowance of £6,475, and extract the rest of the profits
as dividends, you could make the following tax savings in the current tax
year. This salary level involves paying some NICs as the NIC threshold is
£5,715, but a lower salary would waste part of the dividend tax
credit. Salary is also tax allowable for the company whereas dividends are
not.
For 2009/10 the following shows for
different profit levels the tax payable as a sole trader, by incorporating
as a company and the total saving...
Profits
£15,000: Sole trader: £2,573 - Company £1,951 -
Total saving: £622
Profits £30,000: Sole
trader: £6,773 - Company £5,101 - Total saving:
£1,672
Profits £50,000: Sole trader:
£13,169 - Company £9,463 - Total saving:
£3,706
Profits £100,000: Sole trader:
£33,669 - Company £29,838 - Total saving:
£3,831
Profits £150,000: Sole trader:
£54,169 - Company £50,213 - Total saving: £3,956
There are other tax factors to consider. For
example...
- If the company owns a car that is used privately by
the business owner, this can seriously reduce the tax savings. However, the
answer is not straight forward as it depends on the cost, age, and CO2
emissions of the car (see below).
- The amount of profits left within
the company for future use. If dividends are only taken to take your income
up to the level of basic rate tax, substantial further savings of
many thousands are possible!
- The availability of tax-free
benefits such as childcare vouchers.
Tax rates are due to increase
from 2010/11. Individuals will pay a top rate of 50% on
income over £150,000 and the personal allowance will be withdrawn for
those with income over £100,000. The tax rate paid by a small company
will also rise to 22%. These changes will reduce the tax savings to be made
by operating through a company. The calculations summarised as follows for
2010/11 assume a salary equal to a personal allowance of £6,635,
which is reduced to nil when profits exceed
£113,000.
Profits £15,000: Sole
trader: £2,530 - Company £2,004 - Total saving:
£526
Profits £30,000: Sole trader:
£6,730 - Company £5,304 - Total saving:
£1,426
Profits £50,000: Sole trader:
£12,998 - Company £9,704 - Total saving:
£3,284
Profits £100,000: Sole trader:
£33,448 - Company £30,273 - Total saving:
£3,215
Profits £150,000: Sole trader:
£56,642 - Company £53,633 - Total saving: £3,009
Please talk to us about the savings possible for you. We can
provide a calculation specific to your circumstances and outline the many
other factors you will need to consider when incorporating. |
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| Are You Trading in
Properties? |
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Low property prices are tempting some people to acquire
residential properties to develop and sell when the market improves. If you
intend to do this, the Tax Inspector may argue that you are actively
trading in properties, rather than just investing and letting.
If
you are considered to be trading in properties it will have the following
tax consequences:
- All the gains you make on selling the
properties will be subject to income tax at 20%, 40% or 50% rather than
capital gains tax at 18%.
- NI will also be due on top of these income
tax rates.
- You will not be able to set your annual capital gains
exemption (£10,100 for 2009/10) against the gains made from selling
properties.
- If you run the property business through a limited
company the difference in tax rates will be far less.
- You may need to
register for VAT.
- Any rents received may be taxed as incidental
trading income.
- The value of your business should attract a 100%
exemption from inheritance tax as business property.
- You can get tax
relief for indirect or abortive expenses connected with buying and selling
properties.
- Any losses you make by trading in your own name can be
set against your other income.
- You may qualify for entrepreneurs'
relief if you sell your whole property business.
Please talk to us
about your plans so we can advise you on the tax strategies which will fit
your business. |
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| Tips for Quick VAT
Registration |
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There are a number of reasons why you would want to, or need
to, register for VAT quite quickly. Once your turnover for the last 12
months exceeds £68,000 you must register for VAT within 30 days. If
you start a new business, incorporate your current business (see above) or
buy an existing business you may also need to register for VAT
immediately.
The VAT office aims to issue a VAT number to 70% of
businesses within 13 working days of receiving the application for VAT
registration. However, the remaining 30% of businesses may suffer delays,
which can endanger the viability of the business. If you need to register
for VAT follow these tips to speed up the process:
- Use the
correct form: VAT 1 - this form was revised about a year ago so make sure
you use a new version.
- Include the bank account number for the
business that is registering for VAT. Do not include a bank account number
for a different business. No bank account will delay the
registration.
- Show a contact telephone number for the business.
Although it is not a legal requirement to have a telephone number, the VAT
registration will be delayed if you don't include one.
- If the
business is a company you must include the date of incorporation and the
company number.
- The business address must be a UK address where the
business will be carried on. A 'care of' or PO box address is not
acceptable.
- The business activity description must be clear and not
generalised. Consultancy businesses need to state their area of expertise,
such as 'business management' or 'information systems'.
- You must
include an estimate of the annual turnover. This gives the VAT office an
idea of the risk profile of the business.
- If any of the business
owners have been involved in any other businesses in the last two years the
full names of those businesses, including VAT numbers, must be given.
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If you are registering for VAT on a voluntary basis complete box 13 and
specify the date you require to be VAT registered from.
- The VAT 1
form must be signed by an appropriate person, such as partner or director.
Remember to state in what capacity that person is signing. |
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| Company Cars Getting More
Expensive |
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If
you drive a company car you need to keep an eye on the tax you pay for
using the vehicle, as this is likely to increase year on year.
The
tax charge is related to the car's CO2 emissions and its price. An average
car has CO2 emissions of around 160g/km, which means for a petrol car the
driver is taxed on 20% of the vehicle's list price every year. This
percentage will increase to 21% from 6 April 2010, and will be 22% from 6
April 2011.
The list price is the show-room price for the car, not
what your employer actually paid including discounts. Currently the list
price used for the tax calculation is capped at £80,000, but from 6
April 2011 this cap is removed. This will hit drivers who get their own
companies to pay for top range cars.
Say you drive an Aston Martin
DB6 costing around £160,000, which has CO2 emissions off the scale.
In 2009/10 you are taxed on £28,000 (35% x £80,000). At the 40%
tax rate this amounts to a tax bill of £11,200. From April 2011 you
will be taxed on £56,000 (35% x £160,000). At the top tax rate
of 50% that will apply in 2011/12, this will produce a tax bill of
£28,000.
If you are drive an alternative fuel car, such as a
hybrid, bio-fuel, or E85 fuel, you currently get a reduction in the tax
charge compared to normal cars. This discount will be removed from 6 April
2011 for all alternative fuel cars, except for pure electric cars, which
will still be taxed on 9% of their list price.
So the message is:
get that expensive car out of your company ASAP, and if you must drive a
company car, may be it's time to start thinking electric, or at least very
low CO2 emissions. |
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| Question and Answer
Corner |
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 Q. My company submitted a claim for a tax
refund for £15,000 in January, but it still hasn't materialised. We
really need those funds now. I've chased the Tax Office but get some excuse
about security checks. How long will I have to wait for this
money?
A. HMRC have imposed extra
security checks on many tax refunds in an attempt to block fraudulent
claims that have been flooding the system. These extra checks are slowing
up refunds to genuine businesses. A six month delay is quite exceptional.
Try writing to your Tax Office suggesting you will take the matter to your
local MP if you do not receive the tax refund within 10
days.
Q. In the last two years I have lent my company in
excess of £40,000, but now the company is insolvent and I will not
receive any of that money back. Can I claim any tax relief for that
loss?
A. Assuming your company was a
trading company, as opposed to a company that just holds investments, you
can claim a capital loss for your loan. The Tax Inspector may ask you to
show the funds were used for the company's trade, rather than simply use to
pay dividends, so be prepared to supply the company's accounts if
requested.
Q. I was made redundant on 27 February 2009
from where I was paid £16,000 a year. Almost immediately I found a
part time position that pays about £9,400 a year. I made a claim for
Tax Credits as I am working 30 hours a week now, but I've received a Nil
award. What should I do?
A. Your initial
Tax Credits award is based on your income for 2008/09, which was too high
for you to qualify for Tax Credits, assuming you are a single person with
no children. However, on your current wage you should qualify for about
£1,200 a year in Tax Credits. Just ring the Tax Credits Office and
tell them your current wage rate. They should revise your tax credits award
within weeks. |
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| Key Tax Dates for July
2009 |
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 5 - Deadline for PAYE settlement
agreement for 2008/09.
6 - Deadline for 2008/09
forms P11Db, P11D and P9D to be submitted and copies of P11D and P9D to be
issued to relevant employees.
Deadline for employers to report share
incentives for 2008/09 - form 42.
14 - Return and
Payment of CT61 tax due for quarter to 30 June 2009.
19/22
- PAYE/NIC and CIS deductions due for month to 5/7/2009 or quarter
1 of 2009/10 for small employers.
19 - Class 1A
NIC due in respect of the tax year 2008/09.
31 - Second self assessment payment on account due for
2008/09.
Second 5% penalty surcharge on any 2007/08 outstanding tax due
on 31 January 2009 still unpaid.
Second £100 penalty if 2007/08
tax return due for filing on 31 January 2009 is still
outstanding.
Deadline for Tax Credits to finalise claims for 2008/09
and renew claims for 2009/10.
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 Please contact us if we can help you with these or
any other tax or accounts matters.
In addition, if there's anyone
else who you think would benefit from the newsletter, please forward the
email to them or ask them to contact us to be added to the newsletter list. |
 If you are not already a client and are interested
in becoming one, we would love to come to meet with you to discuss how we
can help and provide you with a competitive quote for our
services.
All new client consultations are provided free of charge
and without obligation. |
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Goringe & Co. is an accountancy practice specialising in providing business and accounting services for companies and sole traders in West Berkshire and the surrounding area.
We deliver a professional, cost-effective, and reliable service. Visit our website http://goringeaccountants.co.uk for more information. |
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