Basis Period Reform explained.

Employers - Payments to HMRC. What do they include?

Mon, 13 May 2024 15:51:04 GMT

Payments to HMRC

Ever heard someone complain about payments to HMRC?

Who hasn’t!

With employment, you needn’t get caught out if you know what will go on top of your payment to employees.

You can even buget for it if you know what your payments to employees will be!

So let’s discuss what the payment to HMRC can include, when you’ve got to pay it and how to pay it.

Let’s get started...

PAYE & Employee NIC’s

PAYE & NIC’s will be deducted from the salaries process through the payroll.

Employees will take home their payments ‘NET’ after these deductions.

PAYE

The Basic rate is charged at 20% for monthly earnings between £1,048 and £3,142, Higher rate between £3,142 to £10,428 and 45% for anything above £10,428.

(x these amounts by 12 to find the annual thresholds)

NIC’s

The first annual threshold for employee NIC’s is now £12,570 (the same as PAYE), where your employee will pay 8% between £1,048-£4,189 per month, then 2% for anything over £4,189 per month (£50,268 per year).

The amounts will vary depending on their payroll and other deductions or additions they have added to the pay run.

So this is part one of what your payment will be made up of to HMRC.

EMPLOYERS NIC’s

The next part of your payment to HMRC will usually include Employers Class 1 NIC’s.

For 2024/25, these come into effect on any employee paid over £9,096 per year (or £758.00 per month).

The amount employers will pay on salaried amounts over over £758.00 per month is 13.8%.

Examples:

You pay an employee a consistent £500 per month.

The monthly Employers NIC charge is £0.

You pay an employee a consistent £1,000 per month.

The monthly Employer NIC charge will be (£1,000-£758) x 13.8% = £33.40. £400.75 for the year.

If you claim employment allowance, you will get up to £5,000 removed from this charge every tax year.

Any balance payable will be included in your payment to HMRC.

STUDENT LOANS

If your employee has had a student loan, they will repay it out of their salary if they go over the threshold. The threshold and % depends on the loan plan they were on when they were a student.

9% will be payable on the following loan plans over these monthly thresholds:

£2,082 for Plan 1
£2,274 for Plan 2
£2,616 Plan 4
£2,083 Plan 5

Or a 6% repayment on a Master’s or Doctoral Loan if they earn over £1,750.

This will be included in the payment you need to make to HMRC.

CIS DEDUCTIONS

f you hire subcontractors in the Construction Industry, although these are not your employees, you may still have to make payments from their deductions and pay HMRC in your PAYE bill.

The Construction Industry Scheme (CIS) deduction rates are:

20% for registered subcontractors
30% for unregistered subcontractors
0% if the subcontractor has ‘gross payment’ status.

You have to pay these deductions to HMRC and they count as advance payments towards the subcontractor’s tax and National Insurance bill.

WHEN & HOW TO PAY

WHEN

You have to make payents on the 22nd of the next tax month if you pay monthly.

Or, the 22nd after the end of the quarter if you pay quarterly.

HOW

You need to use your unique Accounts Office Reference number (AORN) as the payment reference.

Example: 123PA12345678.

You can pay online or by Direct Debit.

HMRC bank payments to:

sort code - 08 32 10
account number - 12001039
account name - HMRC Cumbernauld

LATE PAYMENTS

There are penalties for payments not made in full or on time to HMRC.

The first failure to pay doesn‘t count as a default. Further payments either late or not made in full are charged:

1 to 3 @ 1%

4 to 6 @ 2%

7 to 9 @ 3%

10 or more @ 4%

Daily interest will also be added to the amounts you owe. until fully paid.

A further 5% will be charged if it is still outstanding after 6 months and 5% again at 12 months.

So it‘s important to budget this right.

Was this helpful?

Share it with your business owner friends and please feel free to contact us if you need some support.

Setting up as a new employer? Here's what you need to do!

Mon, 13 May 2024 10:02:09 GMT

Employing your first staff member.

Employing for the first time can be one of the scariest steps a business owner makes.

Here, we have a step by step process to becoming an employer and getting off on the right foot.

Where do I start?

STEP 1. Register with HMRC as an employer.

Apply online at: https://www.gov.uk/register-employer .

Following registration, you will receive 2 important numbers unique to you:

Employer PAYE reference (or ERN)

Usually in the format: 123 / AB12345

This links to your tax records when you start submitting payroll information.

Accounts Office Reference Number (AORN)

A 13 character reference in the format: 123PA12345678

This is the number you’ll use when you make a payment for the PAYE tax, NI and any other deductions from employees.

You’ll need to keep these details very safe for all future records.

Employers’ liability insurance

You need to get this as soon as you become an employer and protection for at least £5 million.

You could be fined £2,500 without it.

Make sure you display your certificate or keep it safe if you can’t. You can be fined up to £1000 if you can't prove you have this if inspected.

Set up a workplace pension scheme

You must enrol and make an employer’s contribution for all staff who are aged between 22 and the State Pension age and earn at least £10,000 a year.

The minimum contributions are: Employers 3% and Employees 5%.

You can choose to pay a higher amount as an employer if you would like to. This means the employee could pay less. As long as the total minimum is 8%.

Get an employee contract set up

ACAS is like a best friend for empoyers with tons of advice on all things employment - https://www.acas.org.uk/ has lots of free to use simple employment templates for employee contracts.

Do check though if you have a complicated business and seek legal advice for those contracts.

We can also advise you on these and what they may need to include.

I.D. and DBS checks

Always obtain proof of ID to keep on file for new employees. This is to verify that they are allowed to work in the UK.

Check also if they need a DBS for the work they are doing. For example: working with vulnerable people, or in security.

A basic DBS costs £18 and takes up to 14 days to process.

Decide how much to pay

You must pay at least the minimum wage for employees.

For 2024/25 this is:

21 and over £11.44

18 to 20 £8.60

Under 18 £6.40

Apprentice £6.40

If you’re unsure of what to pay skilled workers, it’s a good idea to do some market research on pay in your area.

Payscale.com has a really useful tool you can use to check what you should be paying for the type of employee, skills and length of experience you are looking for. A good, fair salary is more likely to guarantee your employee will stay and grow with you.

Outsource payroll or employ a professional

Employing staff and paying salaries comes with many laws, schemes and rules that you must know and implement.

You can outsource your payroll to us, another accountant or employ a payroll professional to ensure you are doing it right.

Check out our payroll services and contact us for more information. We process payroll for any UK business and can ensure your employees always get their correct pay and all documents via an online portal or sent direct. Taking the stress off you!

What can we do for you?

Payslips. P45's. P60's and P11D's.

Mon, 13 May 2024 09:35:29 GMT

What they are, what they must show and when you need to provide them.

What are all the documents you need to provide to employees regarding tax throughout their employment?

Here is a handy guide, showing you what you need to provide. When you need to provide them and what they each contain.

PAYSLIPS

Employers must provide employees with payslips. This can be electronically or on paper.

Payslips must show:

Earnings before and after deductions.
The number of hours worked if your pay varies.
Any deductions, such as PAYE and National insurance, student loan or attachment to earnings.
Fixed deductions must be explained, such as repayment of loans.

They must be provided to employees on or before the pay day for which the payslip relates.

P45's

EMPLOYEES LEAVING YOUR BUSINESS

Employees must, by law, be given a P45 when they stop working for you.

This should be given by their termination date, or without unreasonable delay if this isn’t possible.

They show how much tax and salary they’ve been paid in the tax year and they have 4 parts.

Part 1 - Contains details that need to be sent to HMRC (software can do that for you).

Part 2 & 3 - To give to their new employer.

Part 4 - The employee should keep this for their own record.

NEW EMPLOYEES

Parts 2&3 of the employee’s P45 from their previous job are needed before the first pay day to know your new employees correct tax code and tax to pay.

The P45 also contains the employees address and National Insurance number. Check these match the records your employee has given you elsewhere.

If they haven’t got a P45, you’ll need them to fill in a ‘starter checklist’ https://www.gov.uk/guidance/starter-checklist-for-paye to work out the new employees tax code to use.

P60's

P60's need to be given to employees who remain employed by you at the end of each tax year, every year.

They show total earnings and tax deductions for the tax year.

They must be provided by 31st May after each tax year, by paper or electronically.

Employees need this to prove how much tax they’ve paid if they want to claim back overpaid tax, apply for tax credits or a loan/mortgage.

P11D's

BENEFITS IN KIND AND EXPENSES

P11D’s are forms that must be submitted to HMRC by employers annually for each member of staff that receive benefits and expenses that are taxable by HMRC.

The total of the benefits provided by the employer in the tax year will allow HMRC to check that the correct amount of tax has been paid.

Tax codes are sometimes altered the following year for employees, based on the P11D information to ensure tax deductions are closer to the expected liability.

A copy should always be given to the employee to review their deductions and/or claim tax relief.

The P11D deadline is 6th July each year. There are penalties for late filing.

TYPICAL BENEFITS REPORTED ON P11D’S:

Company cars
Fuel allowance
Company vans (provided for personal use)
Private medical insurance
Employer loans over £10k (where low/no interest charged)
Accomodation
Memberships
Assets made available to employees without transfer
Other benefits not classed as “Trivial“

TOP TIP!

Keep records throughout the year of any benefits that are not classed as trivial so that the P11D process is made simple at the end of each year.

OpRAs-OPTIONAL REMUNERATION ARRANGEMENTS

OpRAs are where an employee agrees to a reduction in gross pay in return for the benefit.

There are rules to how the benefits must be valued.

Taxable benefits will be based on the higher of:

The amount of pay given up by the employee
The taxable benefit in kind

An employer cannot deduct more than 50% tax from employee salaries.

From 2026/27

HMRC have announced all that paying PAYE and NIC’s on benefits in kind will need to be done through payroll.

How this will be done yet with the 50% restriction and Class 1A liabilities is to be confirmed.

Lonely at the top! Accountants & Bookkeepers: silent supporters of Business owners

Fri, 10 Nov 2023 13:55:13 GMT

The path to the top can be tough!

Being a business owner is often associated with success, power, and influence. However, what many fail to realise is the loneliness that can accompany this position.
At the top, business owners bear the weight of countless decisions, financial risks, and strategic planning.
Sound familiar?

However, behind every business owner, accountants & bookkeepers are there, silently supporting and guiding you towards success. Offering a listening ear, a sounding board for ideas, and a source of guidance during challenging times.

Your financial guardians.
From analysing the financial data, identify trends, and providing insights to help you make informed decisions. So that you can focus on your core goals, knowing that the financials are in capable hands.

Not just number crunchers.
We understand the intricacies of the business world. With the understanding of industries, market trends, and regulations, we help business owners develop effective strategies, identify growth opportunities and potential pitfalls.

Emotional Support!
Beyond the numbers, we provide emotional support to business owners. We understand the challenges, sacrifices, and pressures that come with running a business. Offering a sympathetic ear, providing reassurance during tough times and celebrating your successes.

We are invested in the success of your business. When you achieve milestones or experience growth, we share in the joy.

While the journey to the top may be lonely, business owners are not alone.

We are willing you to succeed, working tirelessly behind the scenes, ensuring that you never feel alone on your chosen path.

Capital Allowances...should you claim them?

Thu, 31 Aug 2023 20:13:09 GMT

Capital allowances. To claim or not to claim? When it’s good and when it’s bad.

Claimingtax allowable depreciation on your assets as a business is a term known as "Capital Allowances" (CA's).

When assets are purchased, they are added to a “pool” at thier fair value, which is reduced annually using HMRC ranging from 2% to 100% depending on the asset (and tax year) involved.

These allowances are deducted against your annual profits to arrive at your taxable income.

You do not need to claim CAs each year. It’s your choice.

You do not lose the unclaimed value so if you go easy on your claim, you’ll still be able to continue claiming in the next year and years ahead.

There some instances where it would be wise to waive your entitlement.

These are when:

Your profits are low enough to be covered by your personal allowances.

To elaborate on this - Your personal allowance is set each year by the government. For 2023/24 the allowance is £12570. This personal allowance is a “use it or lose it” allowance, meaning you can’t carry any unused allowance forward to the next year. If your profits were below this amount caused by claiming too much CA’s, you’d be essentially wasting your personal allowance and have less Capital value in the pool to carry forward, meaning you’d lose out in future years from a higher claim.

• Higher profits are needed for pension or mortgage purposes.

If you’re in the process of re-mortgaging or seeking out a business loan, low profits won’t look good. Claiming 100% of the asset value could lower your profits significantly in that year which won’t look good on a bank application when trying to prove your earnings are sufficient to pay the loan or mortgage back.

Claiming them might trigger an excessive Gift Aid donation charge.

So you’ve given donations and ticked the Giftaid box? Standard practice for most of us who are happy to give that bit extra. However…Donors who have not been charged sufficient tax to cover the Income Tax deducted from their Gift Aid donations are responsible for pay any difference.

Other loss relief (which may be lost if not claimed) can be used instead

If in the accounting years prior you suffered losses in your busines, you only have so long to claim these back in the future years. If a loss relief claim has been made, the carried forward loss must be set off against the next available trading income.

There will be a large Balancing Charge (the difference between selling price and brought forward balance) if you plan to sell assets in future.

Think carefully on this one. You’ve bought a nice expensive vehicle or piece of equipment. You want to claim all of the cost back. So tempting.

But when you sell it in future years, the balance in the pool could be zero if you claim all of it. If that happens and you sell it for a nice sum, you’ll pay tax on the difference between what is in the pool vs what the selling price is. This is known as a balancing charge. On the other hand, if you don’t claim much and your selling price is less than the figure left in the pool, you’ll get a balancing allowance which can be deducted in your favour later.

Points to remember:

HMRC cannot force you to make a claim for CA’s each year.
Do the maths.
You can choose to waive some or all of any CA’s.
Consider the future.
CA rates are subject to change. (So you might opt to waive your entitlement for one rate, for it to change in another year. Ultimately, you will still receive the same amount of allowance for the life of the asset, it is just the timing of the relief that will alter).
Get professional advice from a qualified, experienced accountant.
Not claiming every allowance at the first opportunity, you can potentially avoid wasting your CA’s against other allowances or losses, optimise how much relief you can claim in future and reduce potential charges on the sale of assets.

We hope this has helped a few of you consider your options.

Basis Period Reform and what it means for you

Sun, 16 Jul 2023 07:43:13 GMT

Basis period reform. What is it? Does it affect you?

If you’re an unincorporated business (Sole Traders, Partnerships and trustees of trusts) with an accounting date that is different to the tax year April - March, this reform will affect you.

Below, we've tried to break down the whole subject and answer some of your questions which will no doubt be on your mind...

Firstly, let’s discuss the basics of the above title.

What is a basis period?

This is your accounting year that your accounts are prepared to in your usual annual accounts. This may be April to March like the tax year or it may be different. Usually your accounts are prepared from the month you began trading, unless you or your accountant changed this.

What and why are things changing?

HMRC are implementing the basis period reform over 2 years to bring all unincorporated companies accounting periods in line with the tax year to simplify taxes and ultimately collect taxes sooner for those on different accounting dates that don't align.

When is it happening?

The tax year 2023/24 is the transitional year for Basis Period reform. 2024/25 tax year is when the full rules come into affect.

What do I need to know?

Your tax return for the year 2023/24 will include your usual current accounting year, but be stretched to include the period up to the end of March 2024.

EXAMPLE: If you have an accounting period of July to June, your return for 2023/24 will be 1st July 2022 to 31st March 2024.

If your current accounting year is the same as the above example, this means you’ll be taxed on 21 months profit on your tax return for 2023/24.

This is likely to cost you a lot more with you accountant as many more month are included in the calculations for your tax returns.

Following the transitional year, the next year 2024/25 will be profits calculated on April to March and continue with those months every year going forward.

What if I want to keep my accounting date the same?

Internally you could keep your accounting and reporting dates the same if you want to. However, this would mean producing 2 sets of accounts each year - your current accounting year for your internal business use and reports for the tax year.

Accountants will produce reports for the tax year from 2024/25 as standard, but you can request that reports for your original accounting period also be made. This will undoubtedly cost more to produce 2 sets instead of just the new period being the tax year version.

Will I have to pay for all the extra months tax in one go by the 31st January 2025?

As discussed, Tax bills will be higher in the transitional year for clients with accounting dates that don’t align with the tax year.

HMRC has recognised this issue and is allowing tax payers with overlapping profits to spread them over 5 years.

What about my previous overlapping profits from when my business/trading started?

If you started trading with a date that didn’t align with the tax year, it’s likely you were taxed twice in your early years of trading.

If you’ve forgotten about this, I’ll give you a reminder using the above mentioned dates that don’t align.

EXAMPLE: If your business started trading midway through a tax year, let’s say again, in July and we'll use 2015 as the year for this example.

1. Your first return would be based on the period July 15 to March 16 and form your return for tax year 2015/16.

2. Your second years return would’ve then been based on your first full year. July 15 - June 16 and form your return for tax year 2016/17.

Quite clearly you can see here that you had been taxed for 9 overlapping months which are called overlapping profits.

If your business ceases trading, you would be entitled to deduct these overlapping profits paid at the beginning from your final tax bill.

What if I don’t have the records any more of those overlapping profits?

The good news is, HMRC are developing an online form for you to request overlap profit figures directly.

The new basis period reform rules mean that overlap profits will now become a thing of the past.

Is anything else going to change after 2025?

It is planned that by April 2026 Making Tax Digital for income tax self-assessment (also shortened to MTD-ITSA) is going to come into place. This is going to require quarterly filed reports for my Self-employed and Partnership clients throughout the tax year.

What is the advice accountants are giving to clients about these changes?

Accountants are always recommending that clients use software to keep on track of their accounts.

Cloud software will help to give real time information on your profits and cash flow. Having your software accurate and up to date will be imperative at this point with less time to file between returns. There are some free software choices out there too like Free Agent for a lot of businesses with certain banks.

Adopting a hands on approach or seeking help with your bookkeeping and returns now will help you to adapt and be ready for this point way ahead of time.

More info can also be found from HMRC website regarding the reform Basi s period reform - GOV.UK (www.gov.uk)

Hi Altitude is here to help existing and new clients with any new challenges, so do get in touch if you have any questions and need help from a local accountant ��

Maternity & Paternity Leave & Pay

jayrickards@gmail.com (Jay Rickards) — Sat, 03 Dec 2022 11:41:31 GMT

The lowdown on Statutory Maternity & Paternity pay for Employers and Employees

Becoming a parent or your staff becoming a parent is an exciting time of celebration!

Huge congratulations to you or your staff if you are at this point!

There are a few rules and regs around Maternity pay and Paternity pay to get your head around if as an employer you've never been in this situation before, or indeed been a parent before needing to claim SSP or SPP.

We've written this blog to give you some guidance on how it all works and look at some of the things that you need to be aware of and rules to follow to ensure the claim process is smooth running.

What is Statutory Maternity pay (SSP)?

Statutory maternity pay is an entitlement of payment for employees becoming parents who have worked for a company for 26 weeks or more before the end of what is called the 'qualifying week'.

The qualifying week is 15 weeks before the baby's due date. The 'Due date week' is taken from Sunday to Saturday. For instance if your baby is due on a Wednesday, the Due date week will be classed as the Sunday before that date.

The Qualifying week is then counted back from that Sunday to 15 weeks before.

Statutory Maternity Leave is 52 weeks.

Statutory Maternity Pay is paid for 39 weeks in total. For tax year 2022 to 23, the rate of entitlement is £180.00 per week for six weeks, followed by £156.66 for 33 weeks.

If an employee wishes to take the whole of their leave entitlement, the employer is not obliged to make payments beyond 39 weeks of leave.

If an employee is not entitled to SMP they can claim maternity allowance MA instead.

For this, the Employer needs to provide an SMP1 form to the Employee which can be downloaded here . This should be given once evidence via the MATB1 form is given to the employer as evidence to the pregnancy.

What rules have to be met to make an employee entitled to SSP?

There are four conditions which have to be met for an employee to qualify for SSP payments.

These are:

Medical Evidence
Notice period
Worked long enough
Earnings

Let's go into a little more detail about each one.

Medical Evidence

Evidence has to be supplied to the employer in the form of a MATB1 certificate or letter from a doctor confirming the pregnancy and the due date. This is given to every expectant parent to be which confirms a pregnancy. A copy of this will need to be provided to the employer for the employer record.

The latest that this can be given to the employer is 21 days before stopping work to take the leave. If the certificate or letter is not given to the employer before this time then they would not qualify for SSP.

Notice Period

A minimum of 28 days notice is needed for the employer before the leave starts.

Worked Long Enough

The employee must have worked for the company for at least 26 weeks by the end of the qualifying week.
This is 15 weeks before the baby's due date.

Therefore, the pregnancy must have been conceived while employed.

Earnings

The average earnings must be above the lower earnings limit to qualify for statutory maternity pay . For 2022/2023, this is £123.00 per week. The average earnings are worked out over 8 weeks into the qualifying period.

What can the Employer reclaim back on these payments?

An employer can claim back up to 103% of these payments depending on the company size.

You can reclaim 103% if your business qualifies for Small Employers’ Relief . You get this if you paid £45,000 or less in Class 1 National Insurance (ignoring any reductions like Employment Allowance ) in the last complete tax year before:

the ‘qualifying week’ - the 15th week (Sunday to Saturday) before the week of the due date

If the Class 1 NIC's are above £45,000, the amount that can be reclaimed is 92%.

What if the Employer cannot afford to make the payments?

You can apply for HM Revenue and Customs ( HMRC ) to pay you in advance if you cannot afford to make the statutory payments.

You can apply here

Paying back your advance payment

Send an Employer Payment Summary (EPS) for each pay period you reclaim statutory payments - even if you got an advance payment from HMRC to cover statutory payments to your employees.

If the statutory payments you reclaim are more than your PAYE deductions for that month, HMRC will automatically use what’s left to reduce what you owe on your advance payment.

Example

You have £2,500 in PAYE deductions to pay after sending your Full Payment Submission (FPS).

You reclaim £3,000 in statutory payments in your EPS.

Your advance payment will be reduced by £500 (£3,000 minus £2,500).

Keeping In Touch Days

Keeping in touch days are days where an employee can work up to 10 days whilst on leave to keep their entitlement of statutory maternity pay.

The employer cannot insist that they work during their leave.

Any more than 10 days worked and the employee would lose their SMP entitlement for that week.

Statutory Paternity Pay (SPP)

Paternity pay can be taken for one or two consecutive weeks after the baby is born.

Paternity leave must be taken within eight weeks of the birth and can be taken by the biological father or mother's partner.

Leave must be taken in one go.

Paternity leave must be taken to care for the Mother and child.

Entitlement criteria is similar to that of the Mother to be with the 4 elements being satisfied:

Evidence

An SC3 Declaration form from HMRC must be given to the employer which can be downloaded here .

Notice Period

15 weeks before the due date.

Worked Long Enough

The employee must have worked for the company for at least 26 weeks by the end of the qualifying week.
This is 15 weeks before the baby's due date.

Earnings

The average earnings must be above the lower earnings limit to qualify for statutory paternity pay . For 2022/2023, this is £123.00 per week. The average earnings are worked out over 8 weeks into the qualifying period.

Helpful Links:

HMRC Emplyer Guide

Statutory Maternity Pay and Leave: employer guide: Entitlement - GOV.UK (www.gov.uk)

HMRC Maternity Leave & Pay

Maternity pay and leave: Overview - GOV.UK (www.gov.uk)

ACAS - Your Maternity leave and rights

Checking your pregnancy and maternity rights: Your maternity leave, pay and other rights - Acas

Restaurants, Cafes, Bakeries and Caterers on Takeaway Food & Drink... and VAT

jayrickards@gmail.com (Jay Rickards) — Wed, 08 Jun 2022 21:45:31 GMT

Do you know the differences in VAT on takeaway foods?

Many business in the food industry provide take away foods ready to eat from restaurants and cafes, bakery's, deli's and many more.

If this is something you're considering for your business and you're VAT registered, there may be some items you can sell a little cheaper to your customers, VAT free.

Most raw food ingredients and unprocessed foods 'fit for consumption' are zero rated. But when ingredients are put together to produce a meal or snack, it usually becomes vatable.

There are also confusing rules regarding hot and cold food and drinks.

The rules are somewhat complicated and mind boggling to understand so we'll break it down for you here as easily to understand as possible....

Starting with some of the simpler things.

Takeaway items that ALWAYS include VAT

Snack items

Sweets
Chocolate and bars of chocolate
Ready to eat popcorn
Compressed fruit bars
Ice creams, sorbets, ice lollies & frozen yoghurts
Potato crisps
Roasted and salted nuts (out of shells).
Hot snacks and meals.

Drinks

Alcohol
Alcohol-free beers and wines
Bottled water
Fruit cordials and squash drinks
Fizzy drinks (cola, lemonade etc...)
Sports/Energy drinks
Teas (including herbal) & coffee (if hot)
Hot chocolate

Takeaway items that you can ZERO rate

Snack items

Made to order cold sandwiches
Bread
Cakes, including sponge, fruit, meringues and celebration cakes
Flapjacks, cornflake and other cereal cakes, millionaires shortcake, lebkuchen.
Toffee apples
Biscuits - plain or coated in icing (not chocolate)
Tortilla chips and corn snacks
Roasted lentils
Unshelled roasted, salted or plain nuts.
Vegetable crisps not made of potato.

Drinks

Milkshakes
Milk, including soya, coconut, almond etc
Meal replacement/slimmer drinks
Iced teas
Iced coffee

What's the deal with chocolate on biscuits?

A chocolate biscuit can be zero rated IF it meets these conditions:

Chocolate chip biscuits where the chocolate is baked into the biscuit.

Bourbons or other, where the chocolate is in the middle and not on the outside.

Jaffa cakes - it's a cake anyway, not a biscuit, fact!

Where a chocolate biscuit is COATED either partly or fully, you've got to apply vat on it.

The funny one I've saved until last. Our humble Gingerbread men can have 2 chocolate eyes and pass for zero rated, but if you go adding buttons with chocolate or any other chocolate decoration to pimp the little man up, he becomes 20% more expensive.

This covers most cold food items to take out which you may be thinking about selling to customers to consume off the premises. So now we've completed the warm up, let's move on from the cold stuff.

HOT food! What's hot and what's not?

As a rule, it's all standard rated 20% If any part of the food or drink supplied to takeaway is hot. Except! If these 5 tests are met, it can be zero rated.

The 5 tests!

IF the hot food has:

been heated for the purposes of enabling it to be consumed hot
been heated to order
been kept hot after being heated
provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food
advertised or marketed in a way that indicates that it’s supplied hot

I'm going to use a sausage roll as our example here.

The 1st point - heated to be consumed hot.

Example: a sausage roll has been cooked to enable it to be eaten. It's still slightly warm but it's given to you in a paper bag to takeaway to eat, by which time it will be cold. This meets this condition to be sold as zero.

2nd - Heated to order.

If the sausage roll was cold and you asked for it to be heated = standard rated.

3rd - Was it kept hot?

This includes heated cabinets, ovens, hot plates which would make it 20% vatable.

If it was left to cool in a natural room temperature place like a window or non-heated shelf, this would pass this test for zero rated.

4th - Packaging.

Foil lined boxes and bags and special insulated packaging are made to keep food hot. Using these would result in your takeaway food being vatable.

A paper bag or other non-insulated packaging would pass this test for zero rated supply.

5th - How are you going to advertise it?

"Hot sausage rolls" - standard 20%

"Freshly baked" - passes zero rated supply test.

ALL 5 of these tests have to be met to rate the supply zero rated, or it's a hot food.

Need help getting it right?

We'd love to hear from you and help you to get things perfect for your business.

From guidance to helping you to input the different rates into your til system, we can find what works to take the stress off your hands.

We'd love you to get in touch.

Now...who's hungry?

CIS for newbies

jayrickards@gmail.com (Jay Rickards) — Tue, 22 Feb 2022 17:42:29 GMT

CIS - What does it mean for my business?

Do you understand the reverse charges yet or had it explained and still don’t get it?

��The aim of the reverse charges in the domestic construction industry is to combat missing trader fraud.

��The end user will now pay the vat due to HMRC.

��So the vat registered business supplying ➡️ to another vat registered business will have to state on the vat invoice that it is subject to DRC. It is the end user that must account for the vat due through its vat return, instead of paying it to the supplier.

��Who will it apply to?
It will apply to specified services (specified services defined as construction operations for purposes of CIS) between 2 vat registered businesses where there is an onward supply to another customer. The scope is broad so do check.

�� Applicable services include:
• construction
• repair
• installation of air conditioning/lighting/heating.
• painting and decorating
• demolition
• civil engineering
• extensions
IMPORTANT❗️If there is just an element of the service subject to DRC, the whole supply should be treated as DRC.

��Both parties can agree any subsequent work on the same site be covered by the DRC. However, if the initial services were not subject to DRC, but subsequent work is, the vat treatment changes. You’ll need to review this project by project.

�� DRC will apply, unless:
• supplies are zero rated.
• the supplier and recipient are landlord and tenant, or vice versa.
• the recipient is NOT vat registered.
• the recipient makes an onward supply of those services to a connected company.
• the services are for either the owner/main contractor who sells/lets the newly constructed building.

�� If the customer does not confirm if they are the end user in writing, the guidance is to treat as DRC.
If it is clear the customer IS an end user, it is acceptable to charge vat in the normal way.

��New work checks:
• confirm end user in writing if possible.
• Obtain their vat registration number and CIS status.

�� On invoices:
• must include all normal info on vat invoice.
• Must make clear that supply is subject to DRC and the customer pays VAT.
• A HMRC suggested wording “Reverse charge: VAT Act 1994 Section 55A applies”

Please get in touch if you feel stuck and need a hand.

Pre-trading expenditure

Tue, 22 Feb 2022 17:36:55 GMT

What you can claim backdated to before your business started operating...

If you’ve recently set up a new business (congrats!) you’ve more than likely absorbed costs in setting up the business yourself from your own personal money and savings.

So, you’ve registered as self-employed or partnership and then what for all the costs you’ve had before that date?

You can claim back your pre-trading expenditure as far back as 7 years for allowable costs.

Allowable costs ( “wholly and exclusively for the purpose of the trade”) are effectively treated as incurred on the first day of business commencement.

Your costs may be any of these:

• Accountancy costs.
• Office rental.
• Business insurance.
• Domain names and web hosting.
• Travel costs (e.g. travelling to visit recruiters and potential clients).
• Stationery, printing, postage, etc.
Phone bills.
• Business equipment (e.g. a PC, laptop, peripheral equipment).

Also, if you decide to become a VAT registered limited company, you can claim the VAT back on those costs for goods bought up to 4 years previous and services up to 6 months previous.

There are some grey areas as to what you can claim, but most are acceptable.
Keep your records and receipts together and ready for your accountant so you can show that these were purchased for the business and most of it will be smooth and help lower that first tax bill.

Get in touch with us for any help.

Choosing an accounting date for your business

jayrickards@gmail.com (Jay Rickards) — Tue, 22 Feb 2022 17:29:40 GMT

Do you know the benefits of different accounting dates for your business?

Let's go through some pro's and con's.

Many business owners don’t realise they can change their accounting date.

Which date you already have or choose to have is worth some consideration as it will affect the following for you:
• Any overlap profits
• Timing and amount of tax payable

You can’t do this if you’ve already changed your dates in the last 5 years and your first accounts with the new date can’t be longer than 18 months. You’ve also got to notify HMRC by 31st Jan after the tax year the change was made.

Here are some advantages to a couple of dates:

�� Y/end 31st March benefits ��
• Easier to understand and follow
• Minimises the final years liability
• No **overlap profits (profits taxed twice (in 2 tax years) due to the difference in the accounting period vs tax period)

��Y/end 30th April benefits ��
• More time to prepare and calculate tax, enabling more planning time.
• More time between earning revenue and paying tax - up to 11 months with a 30/04 end date.

Immediate effects of changing date + examples:

��Accounts prepared following change giving a period longer than 12 months = overlap profits deducted to a period of 12 months.

Example -
Old Year end date 30/11
Profits Y/E 30/11/2020 £20,000
New Y/E date 31/03 so will prepare accounts to 31/03/2021
Profits for 16 month period (01/12/2019-31/03/2021) = £30,000
Existing 4 month overlap of £5,000.
Answer:
Profits for 16 months £30,000, less overlap of 4 months (remember ONLY deduct until total months is 12) -£5,000
Taxable profits = £25,000.

�� Accounts prepared following change giving a period shorter than 12 months = more overlap profits created.

Example -
Old Year end date 31/12
Profits Y/E 31/12/2020 £30,000
New Y/E date 30/04 so will prepare accounts to 30/04/2021
Profits for 4 month period (01/01/2021-30/04/2021) = £15,000

Answer:
Tax 12 months to new accounting date = (Jan-Apr) £15,000 + (8/12*£30,000=£20,000)
Taxable profits = £35,000.

**overlap profits are deductible from final profits when the business or partner of the business (in which case their proportion) ceases trading.

Self Employed vs Limited Company - which is right for you?

jayrickards@gmail.com (Jay Rickards) — Sun, 23 Jan 2022 12:14:26 GMT

Thinking of starting up? You maybe wondering...What are the main differences with sole traders and Limited companies?

If you're thinking of a new venture, you may be wondering what the difference is between a sole trader and a Limited company and have no doubt heard stories and opinions about both from those you know.

Here we discuss what each one entails, the set up and the pro's and con's of each.

What is a sole trader?

A Sole Trader means you, acting on behalf of yourself as an individual in business.

Your income and costs that are 'wholly and exclusively' for your work is calculated to bring you to your profit.

These profits are taxed every year by filing a tax return/self assessment (SATR) through your tax code. You'll also pay NIC's on the profits too.

To get started, you'll need to set up a Gateway and password with HMRC register as self-employed.

HMRC will ask a few questions so you'll need your details handy such as addresses, contact details, your Trading name, national insurance number and the date you want to start trading.

From then on you'll have to keep records of all of your transactions, comply with any industry regulations and laws.

By the 31st January after the end of tax year you begin trading you'll be required to submit and pay for your first tax return.

HMRC allows you to do this yourself (if you're confident and have experience to do it right), but it's advisable you get some professional advice and help if you're unsure. There are many rules and restrictions regarding income and expenditure to be aware of, as well as some complicated allowances and reliefs that require some working out. A good Bookkeeper/Accountant can help you get it right without that worry yourself.

Though the 31st Jan is the deadline, we'd always recommend getting it sorted as soon as possible after the end of the tax year. The benefits to this are many; You'll know what you need to pay early on and can set up a payment plan for your taxes if you can't afford it all in one go. You'll avoid any late payment penalties and interest on submitting late and you'll also have a good idea of your profits.

Knowing your profits early could be very important if you're seeking to buy a house, get a loan or claim benefits.

Many Accountants and Bookkeepers will also charge up to double their standard fee for self-assessment requests after December due to the heavy workload involved with clients in the run up to the end of January. So it's well worth being on the ball!

Benefits to being a sole trader:

Easier to set up.
Cheaper accountancy fees.
You retain all profits for yourself and can take pay when you like.
Losses will lower income tax.
Less rules and regulations to stick to.
Greater privacy and flexibility.
Easier to close down if it doesn't take off.
Insurance available to cover personal assets.
Usually lower start up costs.

Disadvantages of being a sole trader:

Less protection - You have unlimited liability if things go wrong.
Heavy workload if you don't employ anyone else.
Can look 'less established' than a Limited company.
Can be difficult to raise finance.

What is a Limited Company?

A Limited company is a company that is limited by shares or by guarantee.

It is a legal separate entity to you and you are an employee of the company. Limited companies have separate finances and assets are owned by the company, not you as a person/Director.

If you set up and are responsible for the Limited company, you are the Director of that company and have a duty of compliance and governance as an agent of it.

It's more complicated to set up a Limited company than as a sole trader. You'll need to decide who will be Directors, secretary and any PSC's (Persons with significant control).

Preparation of a 'memorandum of association' and 'articles of association' will be required to detail how you wish to run your company.

You'll choose a SIC code which identifies what your company does and register your company with Companies House .

A company tax return and annual accounts must be filed every year with HMRC which only an accountant can do.

What about pay?

You can take a regular salary before tax for the work you do.

Limited companies are subject to Corporation tax on the profit it makes. Currently this is 19%, but set to rise to 25% in tax year 2023/24.

You'll be able to take dividends from any remaining profit after tax if you wish. However, 'extra' pay taken before tax will be treated as a loan and interest charged if not repaid to the company within certain timescales.

Benefits to Limited Companies:

More personal tax incentives with the choice of dividends if there are profits.
You could end up paying less tax overall (depending on profits).
A distinct entity - contracts are with the company, not you.
Protection with Limited liability. Assuming no fraud, you will not be liable for any losses.
A more professional image. Some companies and even people prefer to work with Limited companies rather than sole traders.
Can be easier to secure finance.
Pensions - these are a legitimate expense of the company before tax.
If you wish to retire or fell ill, it's easier to transfer ownership than a non-registered business structure.

Disadvantages of Limited Companies:

More legal obligations to consider and abide by.
Heavier reporting.
Accounts viewable on Companies House to the public.
Personal details published publicly.
Higher accountancy costs.
Annual Companies House fees.
Strict rules when drawing money from the business.
Less flexibility to change business without written confirmations.
Often higher start up costs.
Losses can only be offset against past or future profits.
Accounting requirements more complex and time consuming.
You do not own the assets, your company does.

To summarise...

There's no one size fits all and lots to consider for each type of business with many pro's and con's to each.

It's advisable to consider things such as costs and any dangers of being liable in any legal battles and the responsibilities for each.

We're here to discuss these in more depth if you need to.

Jay Rickards MAAT AATQB

My next blog "Is Limited more tax efficient?" is coming up next showing when it's better for tax purposes to go Limited.