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Real Time Information (RTI) Penalty Notices

As an employer you may have received an RTI penalty warning letter accusing you of not submitting all of the RTI returns required for 2013/14. However, that letter may be incorrect.

HMRC has admitted that its computer has churned out inappropriate penalty warning letters to employers who have submitted employer payment summaries (EPS) during 2013/14. If you have submitted all the required RTI returns for the tax year you can ignore the warning letter, as a penalty will not be charged.

This “cry wolf” by HMRC sets a dangerous precedent, as you may be inclined to ignore further RTI penalty warning letters that could be issued later this year.

From October 2014 new penalties come into effect where the monthly full payment submission (FPS) is submitted late, or an EPS is not submitted where a FPS is not required as no payments are made. If or when those new penalties arrive you will be able to appeal against the penalty online. Note this online appeal system is not up and running yet.

From October 2014 the FPS will contain a new box that allows you to tell HMRC why the FPS is apparently late, perhaps because you are taking advantage of the concession for payrolls with nine or fewer employees.

The EPS will also be changed in October so it will relate to a particular tax month. This will avoid the need to file the EPS in the window of 20th of the current month to 19th of the following month to ensure it is applied by HMRC to the appropriate tax month.

VAT on Digital Services

Do you sell digital services such as: music or software downloads, e-books or online videos? If so, do you know where your customers are, and whether they are businesses or individuals?

From 1st January 2015, when you sell digital services across international borders you will have to collect information about your customers to determine if they are businesses or not, and where they are based. Where your international sale is to a non-business customer, from 2015 you will have to charge that customer VAT of the country where he or she is located (if that’s in the EU). You will also have to register for VAT in your customer’s country. This is because the VAT threshold for traders selling into other EU countries is zero.

Many music and software creators are suspicious of the large online stores such as iTunes, and want to sell their tunes or games directly to their customers. If you sell through a large online store, that store sorts out the VAT so you don’t have to worry about it. However, if you sell your digital product directly to non-business customers who are located in other EU countries from 1st January 2015, you must deal with the VAT consequences.

The easiest way to do this will be through the HMRC website under a system called VAT-MOSS. This system goes live from October 2014, and it will allow you to account for VAT in all the EU countries you sell services to.

However, in order to use VAT-MOSS you must first be registered for VAT in the UK. If you are not already VAT registered, perhaps because your turnover does not exceed the UK VAT threshold of £81,000, you need to pick one of these options:

1. register for VAT in the UK;
2. stop selling digital services to non-business customers outside the UK; or
3. sell only through online stores or other businesses.

Free Companies House Data

Companies House has announced it will make all of its digital data available free of charge. This will make the UK the first country to establish a truly open register of business information.

UK business growth hits record high

In January 2014 R3 released a business distress index which has highlighted positive figures in UK business growth for 2014. It states that 63% of UK businesses are showing at least one key indicator of growth which suggests that the recovery is bedding in and gaining ground.

There are 5 key indicators of business growth

– Investment in equipment

– Increased sales volume

– Business expansion

– Increased profits

– Growing market shares

By businesses showing positive signs on the above list, it should be the beginning of businesses increasing in confidence which will hopefully aid in their longevity
It needs to be noted however that 37% of businesses are still showing signs of distress. While this means a third of businesses may still be struggling, it is not something to panic over. Carefully and proactively looking after these businesses is the best way to proceed. Keeping a close eye on their management accounts, cash flow forecast and balance sheet is something that bookkeepers, accountants and directors themselves should be concentrating on while signs of distress are still visible.

Some key indicators to look out for within distressed businesses are:

– Creditors being more confident in pursuing their debts

– Under Investment during recession may cause for concern.

– Increase demand on products and goods can put pressure on a company’s cash flow, supply chains and business models

If businesses are prepared to fight through their struggles then their professional advisors should be prepared to support and encourage them with useful information and help along the way.

 

 

 

Flat Rate VAT

The flat rate VAT scheme for small businesses is designed to reduce administration hassle for the businesses that use it, not to reduce the amount of VAT the business pays over to HMRC, but that is often a side effect of using the scheme.

You can use the flat rate VAT scheme if you have an annual turnover up to £150,000 (net of VAT). Once registered to use the scheme, you must apply VAT to your sales at the rates required for the particular product or service (20%, 5% or zero). However, when completing the quarterly VAT returns you ignore any VAT paid on purchases, apart from large assets costing over £2000. You calculate the VAT to be paid over to HMRC as a flat percentage of your gross sales, with the percentage used determined by the trade sector which most of your sales fall into.

For example a hairdresser which is registered for the flat rate scheme must use a flat rate of 13%. On sales of £3,000 in the quarter she charges VAT at 20%: £600. She will pay VAT to HMRC of: 13% x £3,600 = £468.

You must choose to register for the flat rate VAT scheme, it will not be offered to you, even if you would be better off using the scheme. When you register you must choose which of 55 trade categories best fits the majority of sales made by your business. This is important as the flat rate percentages vary from 4% to 14.5% for different trade sectors, so an incorrect choice of trade sector can be very expensive.

You can change the trade sector you opt to use, but HMRC generally only permit a change to be made from the beginning of the current VAT quarter. You must also review the trade sector chosen on the anniversary of starting to use the flat rate VAT scheme. If your sales mix has altered so most of the sales are in a different trade sector, you must switch to using the flat rate percentage relevant to the majority of your sales.

Chartitable giving for Companies

If a company is making a profit it can make charitable donations and get relief against corporation tax. It should claim the total donations made in the accounting period on the corporation tax return for that period. However, the deduction of donations cannot change a taxable profit into a loss, or increase a taxable loss. In those cases there is no tax relief for the donations. Although, if the company is part of a group of companies, the relief for the excess donations may be passed to another member of the group.

The recipient charity cannot claim gift aid relief on the company’s donation

Salary and Dividend Strategy 2014

As a director and shareholder of your own company you can decide how much salary to pay yourself each month in order to use your tax-free personal allowance in the most tax efficient way. Any further funds you need can be extracted as a dividend if the company is making a profit.

If you are a director of your company and you don’t have a contract that sets out terms of employment with the company, you don’t have to pay yourself the national minimum wage. So how much should you pay yourself?

For 2014/15 if you were born after 5 April 1948 you have a tax free personal allowance of £833 per month (£10,000 per year). You could take a salary at that level and pay no income tax, assuming you have no other taxable benefits from the company such as a car.

However, you will pay national insurance (NICs) on that salary as the NICs threshold is only £663 per month. From a gross salary of £833 the company must deduct NI of £20.40 and set-aside employer’s NI of £23.46 on top. The company will have an employment allowance of £2,000 for the year to set against its employer’s NI due on all its employees, so it won’t have to pay over employer’s NI until that £2000 is used up.

If you take a salary of just above the NI lower earnings threshold of £481 per month, you will get an NI credit towards your state pension, but you don’t pay any tax or NI. However, at that annual salary level (£5,772) you will be “wasting” £4,228 of your tax free personal allowance, unless you have other income to cover it.

Claiming Motor Expenses for a Self-Employed Client

You  can calculate their business-related motoring costs by either:
a) Take the proportion of business miles to total mileage driven in their vehicle in the year and apply that proportion to their total motoring costs for the year; or
b) Use the fixed expense of 45p per business mile for the first 10,000 miles driven in the year and 25p per mile for additional business miles in the year.

If your client uses method a) they can also claim capital allowances on the cost of your vehicle, restricted for the private use of that vehicle. However, if they use method b) they can’t claim capital allowances for their vehicle but they can claim the interest amount of any finance lease used to purchase the vehicle.

Employment allowance

In the tax year beginning April 6th 2014.  HMRC are giving UK employers a help.  This is in the form of an Employers NI.  In that tax year the first £2000 of Employers NI will be waived.

For those of you that use Sturgess and Co for payroll this will be automatically calculated and reflected in the quarterly P30.

Do bear in mind that employees NI is not waived, so before you get carried away and put a higher amount through PAYE!

However you should be paying employees the minumum wage which equates roughly to £13,500 a year.  On this example a saving of £765.12 Employers NI will be made each employee.  Total tax and NI due £1363.28 per employee if standard tax code.

please refer to:

https://www.gov.uk/employment-allowance

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