Personal Tax Archives - Page 3 of 3

HMRC Tax Inspections: What to Expect and How to Prepare?

George / 22/12/2020

HMRC conducts random compliance checks against businesses and individuals. They usually smell irregularities through suspicious activities and tax inspections to find any substance. This is a routine process to encourage businesses and other taxpayers to follow the laws and regulations. If you ever notice that you are under the tax investigation of HMRC, don’t think of it as an end process for your business. They don’t want to shut your company. Their end goal is to recover whatever dues owed to them. The more you facilitate this procedure the more things get easy for you. Here are some of the tips on how to go through this phase: Don’t panic First thing’s first, don’t get edgy. You can not swing the tide your way by just simply panicking. The best way to weather the process is by cooperating and staying calm. If things go beyond your grip, seek professional help who can provide you with technical advice. Negotiate a Time to Pay Agreement Sometimes HMRC negotiates to reach an agreement. They consider the time to pay agreements as well. Time to pay clearly outlined plans for the debt repayments. Willingness to pay back to the HMRC will go on to represent a gesture of good faith that certainly helps with the cause. Adopt complete honesty If you lie at any stage of the tax inspections, it will permanently dent your reputation. You will be designated as a non-cooperating individual. Forging documents, falsifying evidence or concealing information from HMRC will make things worse. HMRC uses a state-of-the-art software ‘connect’ that feeds on data and information to sniff their targets. If you adopt a complete honest policy with HMRC, you can expect to survive the investigation. Respect HMRC timeframes During HMRC tax inspections, you may come across any communication by the HMRC that usually comes with a Compliance Check letter. The letter will want you to contact them by the given time scale. The time scale may be intended to spur you into action. But you have to respect the given timeframe. Sitting quite will prompt their measures. Disclaimer: The information about the tax inspections burden provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.

What Tax Relief One Must Expect on Loans for Small Business?

George / 17/12/2020

You always need help when you’re looking forward to investing in a new business prospect. But how much tax relief one must expect on all those loans for small businesses? Christmas is one of the most trending topics these days, and people are grabbing every opportunity to invest in a long-term plan. But what about the interest on these loans? Do you have to pay taxes and VAT on all these loans for small businesses too? HMRC doesn’t consider the capital element of loans for income tax relief purposes. If the loans are exclusively for business purposes, interest paid on loans would be a deductible revenue expense. Let’s say you’re looking forward to investing in the machinery for your small business. The machinery is counted as a revenue expense, therefore it’s allowable for income tax or corporation tax. The loan you ask for in the form of cash is deductible for tax. Especially if the business owner is to borrow the loan personally. He may opt to introduce the cash in the form of a loan. The person borrowing a specific amount should make sure that they’re not just figuring out the tax amount but also maintaining whatever amount is due to them. You must know what you aim to do with the cash you’re borrowing for a loan. If you’re aiming to buy capital, its always a good idea to go for the capital. Make sure you take care of this part. Also, note that the capital may not be qualified if Broadly, the loan will become non-qualifying if either the capital ceases to be used for a qualifying purpose or is deemed to be repaid. For example, Bob borrows £100,000, secured on his house, and lends this to his business. The loan is a qualifying loan, so he can initially claim tax relief on the interest payments. Unfortunately, the rules relating to the repayment of qualifying capital mean that each time a capital credit is made to the account it is deemed to be the repayment of a qualifying loan. Since the capital value of the loan is reduced every time a payment is made, credits totalling £50,000 per year will mean that all tax relief is lost within just two years. Re-borrowing shortly after making repayment is not a qualifying purpose so future relief is also lost. It is also worth noting that a business cannot claim a deduction for notional interest that might have been obtained if money had been invested rather than spent on (for example) repairs. Double counting is not permitted, so if interest receives relief under the qualifying loan rules, it cannot also be deducted against profits so as to give double tax relief. Restrictions under the Cash Basis Tax relief on loan interest is restricted where the ‘cash basis’ is used by a business to calculate taxable profits. Broadly, businesses using the cash basis are taxed on the basis of the cash that passes through their books, rather than being asked to undertake complex and time-consuming accruals calculations. Under the cash basis, bank and loan interest costs and financing costs, which include bank loan arrangement fees, are allowed up to an annual amount of £500. If a business has interest and finance costs of less than £500 then the split between business costs and any personal interest charges does not have to be calculated. Businesses should review annual business interest costs – if it is anticipated that these costs will be more than £500, it may be more appropriate for the business to opt out of the cash basis and obtain tax relief for all the business-related financing costs. Private Use of Assets Where a loan is used to buy an asset that is partly used for business and partly for private purposes, only the business proportion of the interest is generally tax-deductible. Commonly cars and other vehicles used in a business fall into this category. Note, however, that a deduction for finance costs is not allowable where a fixed-rate mileage deduction is claimed. Example Bob takes out a loan to buy a car and calculates that he uses it in the business 40% of the time. The interest on the loan he took out to buy the car is £500 during 2020/21. He can therefore deduct £200 (£500 x 40%) for loan interest in calculating his trading profits. Finally, interest paid on loans used to fund the business owner’s overdrawn current or capital account is generally not deductible for tax purposes.

Accountants, Personal Tax, Tax Issues

Why Outsourced Accountants are the Solution to Conquering Tax Returns

George / 01/04/2020

Regardless of whether you enjoy organizing your finances or wish income statements could disappear altogether, there’s no denying that tax returns are a vital part of your business’s financial feasibility and success. They may be regarded as the dread of most British business owners, but tax returns have proven themselves to be one of the most integral parts of doing business, especially as the HMRC’s own standards grow stricter by the day. While a business’s tax returns are a vital component of its long-term profitability, the simple truth is that they’re complicated, time-consuming, and difficult to understand if you aren’t a financial professional. Fortunately, taking on your business’s own tax returns in the most accurate, efficient, and timely manner possible doesn’t have to entail sacrificing crucial opportunities to improve your business. In fact, outsourcing the services of an accountant will get the job done! To better understand exactly why an outsourced accountant is a solution that your business needs in order to succeed while staying productive amidst organized chaos, let’s look at everything you need to know about them. Efficiency and Effectiveness at their Finest As your business continues to rake in more success, generate more profit, and welcome more customers, your workload is set to proportionally increase as well. When not approached properly, the greater level of success that your business is experiencing may not be as sustainable as you’d hope if you don’t have the necessary skill or manpower to whip everything into order. By letting an outsourced accountant step in, however, you can hand off most of the challenging numerical tasks over to an experienced professional who can get them done more efficiently and accurately. Tax returns, in particular, are an outsourced accountant’s expertise that can be used to your business’s advantage in spite of growing complications with the filing process as your business scales and grows at record rates. Instead of having to burden yourself with the process of filing your tax returns without the essential skills or knowledge, outsourced accountants can help you avoid even the tiniest of errors at all costs. The Significant Payoff of Outsourcing an Accountant Aside from the great deal of efficiency and effectiveness that they provide, another significant selling point of outsourced accountants—such as the professionals at Cruse Burke accountants In Croydon—is that they make for a great investment. Thanks to the fact that most outsourced accountants are highly skilled and have years of experience from working with a wide range of businesses, they can help turn the tides on your tax returns and tweak them to your advantage. From handling your tax returns and filings to spotting other lucrative opportunities and problem points in your business, an outsourced accountant can easily contribute to a greater ROI for your business in the long run. “Okay, outsourcing the services of an outsourced accountant sounds great— but how much does it cost?” Depending on the overall size of your business, the number of transactions it goes through in a certain amount of time, and the complexity of its operations, the costs of outsourcing an accountant for your tax returns can vary. Fortunately, getting a quote for your own business’s needs with affordable Accountants In Croydon by filling out this form is both free and easy— so feel free to fill it out and give us a call today!

Personal Tax, Tax Issues, Tax Saving Tips

Timing Dividends Right Could Help Save Tax

George / 12/08/2019

Timing the date of a dividend payment from a company can determine both the amount and the due date of the tax payable. This may be a particularly useful strategy in a close- or family-owned company. The dividend allowance — the amount you can receive tax-free — has been reduced to £500 for the 2024/25 tax year. Above this, dividends are taxed at the following rates: 8.75% for basic rate taxpayers 33.75% for higher-rate taxpayers 39.35% for additional rate taxpayers Your tax band is determined by your total income, including salary, savings, and dividends. Accelerating payment The timing of the dividend payment may have a marked impact on the directors’ and shareholders’ personal tax situation. A dividend is not paid until the shareholder receives the funds directly or the dividend amount is put unreservedly at his or her disposal, for example by a credit to a loan account on which the shareholder has the power to draw. If the personal tax allowance and basic rate band for a tax year have not been fully utilized towards the end of the tax year, payment of a dividend may mean that the unused portion can be mopped up. Example Graham is the sole director and shareholder of his limited company. In the 2024/25 tax year, he earns a salary of £25,000. He’s considering whether to pay a dividend before 5 April 2025. Personal allowance: £12,570 Basic rate band: Up to £50,270 Remaining allowance in basic band: £25,270 If Graham pays a £25,770 dividend: £500 is tax-free (dividend allowance) £25,270 is taxed at 8.75% = £2,166.13 Remaining £500 is taxed at 33.75% = £168.75 Total dividend tax: £2,334.88 This timing allows Graham to take advantage of the lower 8.75% rate before crossing into the higher band. Delaying payment Where the shareholder already has income exceeding the basic rate band in one tax year, delaying the dividend until the start of the next tax year could save tax. Example If Graham already earned £50,000 in the 2024/25 tax year, his basic rate band is nearly used up. If he pays a £27,000 dividend before 5 April 2025: First £500 tax-free Remaining £26,500 taxed at 33.75% = £8,943.75 But if he delays the dividend to 2025/26, and earns only £25,000 in that year: All £27,000 dividend income remains within the basic rate band £500 is tax-free Remaining £26,500 taxed at 8.75% = £2,318.75 Tax saved by delaying: £6,625 Additionally, the tax is due one year later — giving a useful cash flow advantage. Fluctuating income Dividend payments can often be timed to smooth a director/shareholder’s earnings year-on-year. Broadly, where profits fluctuate, a company could consider declaring and paying dividends equally each year, or by declaring a smaller dividend in the first year (when profits are higher) and treating the remainder of the payment as a shareholder loan. At the start of the next tax year, a further (smaller) dividend can be declared, which will repay the loan. Care must be taken with this type of arrangement, not least because the loan must be repaid within nine months of the company’s year-end to avoid a tax charge arising on the company. The family business potentially offers considerable scope for structuring tax-efficient payments to family members using a mixture of both salary and dividends. A pre-dividend review may be particularly beneficial towards the end of the company’s year-end. Additional Note: ITA 2017, s 8 and s 13A; F(No 2)A 2017, s 8; CTA 2010, s 455